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HIGHLIGHTS FROM THE PODCAST:
1:11 - John's background in real estate
3:10 - The assistance HomeVestors provided for John when he was a new investor
4:10 - The pros of using HomeVestors to grow your investing portfolio
6:50 - Today's market dealing with investing and acquisitions
8:40 - What HomeVestors is doing to adapt during COVID
10:24 - The most successful investors/franchisees do's and don't
13:10 - What to do when you buy a bad deal
20:44 - Three phases that help solve the money piece of investing
24:57 - Partnerships and personality matching tips
Contact:Email: [email protected] Cell: 404-217-7598
FULL TRANSCRIPT OF THE PODCAST AUDIO
John Holman: It's good to keep educating yourself, but be careful not to fall in the trap of giving somebody a whole lot of money and thinking they're going to give you success in return because that quite often doesn't happen. Spencer Sutton: All right everybody, welcome back to another episode of The Atlanta Real Estate Investor. I'm one of your co-hosts, Spencer Sutton, and I've got Matthew Whitaker here with me. Matthew and I are real excited to have John Holman with us. Just so you know, John is a HomeVestor franchisee and he's also a development agent, so he helps other investors make decision to join the HomeVestor franchise system. Spencer Sutton: This is really coming full circle John, because the year was probably 2005, so maybe 15 years ago, my partner and I drove to Atlanta from Birmingham to meet with you because you were having incredible success buying and selling houses. You really helped us out that day, so this is just an honor to hook back up with you and have you on our podcast, so thanks for being here. John Holman: You're welcome. Spencer Sutton: Why don't you start off by telling us a little bit about how you got into real estate in Atlanta and maybe some history with HomeVestors. John Holman: Sure. Well, as Spencer said Atlanta is home for me. I've been here in the real estate business for 20 years now. The first year I just got it in my head that I wanted to be in real estate. I talked to everybody I knew in real estate and pretty quickly decided that I wanted to be a residential real estate investor. John Holman: So I started taking seminars. I took lots of seminars. In fact, I hate to admit it, but I spent over $30 thousand on seminars in about a year and a half, starting in late... Let's see, 2000... Late '99 actually, going to seminars and trying to buy houses. John Holman: In that first year, year and a half, I bought three houses. Made no money on any of them, but learned some very hard lessons, and then stumbled into a fellow who's now a good friend, a guy named Martin McKeller, at a Georgia REIA meeting, and pretty quickly figured out that the HomeVestors organization had the solution to my problems, so I joined right away. It was a quick decision. That was 2001 when I actually joined. John Holman: I stayed in the system till the end of '07, got out for some personal reasons, got back in in about 2010-11, and shortly thereafter became a development agent, which as you said, Spencer, a development agent in HomeVestors has two roles. They help candidates decide if this is the right fit for them, and if they do buy a franchise then we coach and support them and help them learn how to be successful and make money. I've been in since... The second time I've been in since late 2010 or '11. Matthew Whitaker: Okay, so about another 10 years? John Holman: About another 10 years. Yeah. Matthew Whitaker: 20 years is a long time to be in the real estate business so you probably learned a lot. Matthew Whitaker: I'd be curious, when you first got in and you decided HomeVestors was the way you wanted to go you said it solved a lot of problems. Can you talk about the problems of being new and getting into investing and how HomeVestors actually solved those problems for you? John Holman: Yeah Matthew. I think everybody knows that investors have very commonly two primary challenges. One is finding enough deals. A good deal is hard to find and today, as competitive as it is, they're even harder to find, so getting good leads and finding viable deals is the first challenge, and pretty much all investors face that challenge. John Holman: A secondary challenge is getting the money to fund the deals once you find them, and HomeVestors solved both of those problems. HomeVestors has been a franchise system now since '96, so over 24 years they've produced a lot of very successful investors, primarily because they solve those two problems. Matthew Whitaker: You said you spent a lot of money early on seminars, and we find that a lot of people when they first got in the business, us included, we spend a ton of money on education. HomeVestors may be part of the answer to this, but talk about as you've grown in the business the value of seminars and education and continuing to refine what you're doing. John Holman: I think continuing education is important for all of us, no matter what career you're in. That initial education was helpful to me, Matthew, because it sort of taught me the nuts and bolts of real estate transactions, what's a deed and what's mortgages or title insurance and all the nuts and bolts and mechanics of a deal, and it was helpful to know that and I'm grateful to have learned that. John Holman: What it didn't teach me though was how to take that knowledge and turn it into a business, and that's where HomeVestors filled the gap and did that. So I think continuing education is helpful. There is a trap out there though with some of these so-called guru guys. They all tell one little white lie, and that is that if you pay us $10 thousand or $20 thousand or whatever we will convert you to a very wealthy investor. John Holman: The sort of misrepresentation is that anybody who puts a few minutes a week into this is going to get rich, right? But as you know, the success ratio out of those paths is not good. Success is reputed to be less than 5%. John Holman: So it's good to keep educating yourself, but be careful not to fall in the trap of giving somebody a whole lot of money and thinking they're going to give you success in return, because that quite often doesn't happen. It didn't for me. Spencer Sutton: Where do you think if somebody was just getting started and they wanted to continue learning is the most value for their money right now. John Holman: Well, I think it's a combination of things. I think listening to guys like you and keeping in touch with the podcasts and webcasts that are out there, some of those seminars can be good as long as you're careful to avoid the traps. REIA groups can be very good. REIA groups tend to have a lot of investors, some of whom have good experience and a successful track record, so REIA groups can be a very good source. Then there's... The HomeVestors organization itself is a fit for some people, not all. So I would probably try to expose myself to all of the above. Spencer Sutton: I think that's a really good point, because when I came to see you in 2005, like the big secret we walked away with back then was direct mail works. I'm not saying it doesn't work now, but we came home and we started using direct mail and started hitting home runs and we were just blown away. Spencer Sutton: Now the market has changed, like you even mentioned that it's gotten a lot more competitive. How has the market in Atlanta changed, especially when we're thinking about just being so competitive? What have you seen over the past 10 to 15 years? John Holman: I think, Spencer, that being more competitive really sums it up. If you go back to the 2000 timeframe, the market was growing. It grew and got very overheated in that 2006-07 timeframe, and then of course everybody knows about the crash that started in '07 and went through about '11, and that was ugly. John Holman: Since '11 the market has heated up again, so now we're in the most competitive market I've ever seen. I've been in it 20 years now and it's more competitive now than it's ever been. So the ramifications are that it's harder to get deals. It's harder to find good deals and there's just more people out there chasing he same limited number of deals. John Holman: By the way, no surprise, every industry in the world shares the characteristic that the more competitive it is the higher the cost of customer acquisition. That's pretty much universally true. More competition equals higher cost of customer acquisition, and that's happening in this world. We still pay a lot of money and work hard to capture the deals that we get, just like everybody else. Matthew Whitaker: How do you feel about the real estate market right now? Do you think this is something that's going to continue, or do you think that we're headed for another real estate recession? John Holman: Matthew, that's a great question. I don't spend much time worrying about the future for one simple reason. Ken D'Angelo, the founder of HomeVestors... I asked a question like that 20 years ago when I first met him and he said, "Look, John, the market is going to change. I guarantee you it's going to change. Here's what's not going to change though." He said, "The opportunity to make money in residential real estate investing is not going to go away." John Holman: He said, "As long as you adapt to the market that you're in you'll be fine." He said, "If you get stuck in a market that is no longer here and you don't adapt your days are numbered." So when I think, Matthew, about the future I don't worry too much about it. I just know that whatever the future holds in real estate we can and will adapt and we'll do okay. John Holman: I'll give you a recent example. We all know about this COVID period. This has been one of the most successful years ever in the 24 year history of HomeVestors because our organization adapted very quickly. You know, we've got 1,100 plus offices in 45 states, so early in that we collaborated online with these Zoom meetings and adapted very quickly, and this has just been a banner year for us. So as long as people are willing to adapt to the market that they're in there's always a business here. Spencer Sutton: I'd be curious about some ways that you're adapting as a franchise to this new market. John Holman: Well, one of the things we did right away was we changed some advertising, especially broadcast advertising. We introduced what we called virtual appointments, and we bought quite a lot of houses using with what some people call no touch methods, right? John Holman: We would do phone calls initially, then sometimes FaceTime calls. We would do walk throughs where the family is not home. They would leave the home, and a lot opened the front door or the back door and either standing in the yard, and let us walk through quickly with masks on. John Holman: We adapted this year... We adapted to what we call virtual appointments, and then of course virtual closings. We've got a lot of attorneys doing a lot of closings without the normal contact, so that's one small example. Spencer Sutton: I think that's a great one. Speaking of adapting in all these franchisees, 1,100 offices, and you're a coach, John, so you help these franchisees become successful, what are you seeing the most successful investors/franchisees doing that maybe others aren't? John Holman: Good question Spencer. I think one of the things that separates the HomeVestors crop from others is because we do somewhere north of $75 million of advertising each year we do have a steady stream of homeowners calling us, and these are non-competitive deals. Most of the other investing public doesn't know about these deals because they don't spend the money to do the public advertising. John Holman: The most successful ones in our system are the ones that generate a steady flow of leads, and then secondly they keep those homes turning over quickly. The ones that get into trouble, they try to tackle too many big rehabs. They'll take on three, four, or sometimes more heavy rehabs and it just kills them from a cash flow standpoint. John Holman: One of the things... My job is to coach them through managing cash flow. If you manage cash flow you've got a chance to build a real business. If you can't manage cash flow you don't have much chance here. Spencer Sutton: So are most of those investors wholesaling then to free up that cash? Are they doing somewhat fast wholesales? John Holman: Yeah. Spencer Sutton: Got you. John Holman: That's exactly right Spencer. The control that they have over their cash flow is what I call the exit strategy mix. The smartest ones tend to wholesale anywhere from 50 to 80% of their properties and rehab and retail the others. Spencer Sutton: Got you. John Holman: When they get that balance out of balance, that mix out of balance, then they can get into a real ditch from the cashflow standpoint. Matthew Whitaker: Spencer and I often joke, we used to take bad deals and put them in our rental portfolio. But talk about if you're going to do this you're going to make some bad deals. That's just part of it. How do you look at a bad deal? How do you advise the people that you're advising on what to do when they know they've bought a bad deal? John Holman: Yeah, it's very simple Matthew. My advice is get rid of it quickly. Get killed that... My dad used to say, "Never wound a problem. Kill it dead." So we do the occasional bad deal. My coaching and guidance is always get rid of it. I don't care if you have to take a loss. Get rid of it quickly. A small loss now is better than a big loss later. It frees your capital, it frees your mind, and it frees your energy to go find some other good deals. John Holman: We do have the occasional bad deal and occasionally lose money. We don't... Of all of our deals that we do, thousands of them a year, losing money is pretty rare, but it happens. But the best advice I can give is move on. Get rid of it and move on to the next one. Matthew Whitaker: The worse deal I ever did, John, I bought a house kind of near our office right here and bought it one year for X number of dollars, invested a bunch of money in rehabbing it, and then sold it almost exactly a year later for the same number that I bought it for, so I lost about $75 thousand to $80 thousand. John Holman: Ouch. Matthew Whitaker: I swore I was never going to drive down that street again. Today I actually live on the same street, two doors down from that house. My wife found that house and I was like I just know I'm going to end up living here because it's too ironic that it's two doors down from the house that I swore I was never going to drive down the street again. Spencer Sutton: It's just a painful reminder as you drive by every day. Matthew Whitaker: I see that thing every day. Let's talk a little bit- John Holman: You got my definition of experience. Matthew Whitaker: What's that? John Holman: Experience is what you get when you don't get what you wanted. Matthew Whitaker: That's right. John Holman: We try to help investors avoid the experience and come home with a profit instead of the experience. Spencer Sutton: I think... I mean in our early days with HomeVestors we didn't have coaches like this, right? So I think it's a great service. Roland and I were trying to figure it out ourselves. We would call other franchisees that we believed were being successful and tried to learn as much as we can from them, and it really is a great community, because people were open to share, even like Matthew was considered a competitor of mine, but really we wanted each other to succeed, there were enough deals going around. Matthew Whitaker: And you just owed that to me since you sold me that first dog of a house. Spencer Sutton: I did. I roped him in. Matthew Whitaker: I also think... I mean the value right there that John talks about is it is way cheaper to learn from other people's experience, and it blows my mind too when you take somebody with wisdom that's willing to give and tell you what to do and then a lot of people still go out and do what they want to do. Matthew Whitaker: But if you'll just buy into other people's experiences and other people's wisdom, like John, then you're going to be a whole lot better off. You may miss some deals, but you're going to be way better off in the long run. John Holman: And, you know, we have an interesting track record within the HomeVestors organization for that very reason Matthew. Our motto is you don't need to go step on all the landmines yourself. We've stepped on them. We know where most of them are. If you'll listen to us we'll keep off of them, and the result is pretty amazing. John Holman: We have a 95 plus percent success ratio over a 24 year history, whereas as investors going through these seminars have pretty much the opposite, about a 5% success ratio. It really boils down, Matthew, to the fact that we have the formal support which comes in the form of our development agents like myself, and we have over 50 of them out there now, but part of the support in our system is from other franchisees. John Holman: Spencer, as you said before the DA model was created in HomeVestors you and Roland drove over from Birmingham and spent time with franchisees in Atlanta an learned some good lesson. So there's the formal support of the franchisor and the DA organization, but there's also a whole lot of informal support from other franchisees. We do not see each other as competitors and are typically willing to share everything about their business. Spencer Sutton: Yeah, I 100% agree. Matthew Whitaker: You hit on this a little earlier. What do you see people doing right? I know you mentioned learning from others, but what are some other things you see people doing right? John Holman: Yeah, good question Matthew. Number one, generating a steady flow of leads, okay? Everybody knows that getting leads, whether you're in HomeVestors or outside, it's harder and more expensive than it used to be. Some franchisees, there's a minority of them, but a few of them get intimidated by the cost of the lead and the number of leads to get a deal, and they back off of that and sort of run and hide, right? John Holman: So the ones that are successful tend to stay focused on generating a steady flow of leads and then not letting the... Falling into the trap of taking on too many rehabs. When you look at a rehab in retail, it looks like a big profit. To make up an example, people buy these houses thinking they're going to make $40 thousand on them, but I know it's going to take them six months to a year to get rid of that. John Holman: I would much rather buy two or three or four houses that I wholesale to other investors and make 10, 15, 20 on and have a good cash flow rather than get bogged down in these monster deals. So number one, generating a steady flow of leads, and number two, managing cash flow by managing that exit strategy mix. That really is the hallmark of the successful investors in my experience. Matthew Whitaker: And you mentioned, number two, managing those leads. It also becomes very important to understand what business are you in. If you want to only rehab and renovate three houses a year you don't need a steady flow of leads, but you're probably going to have to take what somebody that does have a steady flow of leads gives you. Matthew Whitaker: But understanding that if you're in the business of velocity, in other words investing your money, getting it out as quickly as possible, like wholesaling, then you need to be crystal clear on that's your business. Don't try to do too much and try to be all things to all people. John Holman: That's absolutely right Matthew. We have investors that come to us occasionally and say, "Yeah, I'd like to buy three, four, five, six houses a year to add to my rental portfolio," and we tell them, "Don't buy a franchise because you don't need to pay for all these leads. You don't need to do all the things that franchisees do. We'll sell you those houses. We'll wholesale them to you." You'll pay us a small markup for it, but honestly if you only want to buy three to six houses a year we discourage people from buying a franchise, because it's just not a fit. John Holman: So knowing the business you're in, Matthew, is exactly right. Our organization is a best fit for people that want to generate a steady flow of deals and actually make a living from it, make a business out of it, as opposed to an occasional rental house. Matthew Whitaker: Talk a little bit about the money piece of this. You said there's really two problems. There's obviously leads. Talk about how people are solving the money piece of it in the investor community right now. John Holman: I think most people know that in the last really five years Wall Street sort of figured out that there's a business here, a business first in buying and holding rental homes, and Invitation Homes and large companies like that who are buying tens of thousands of homes around the country are building these huge rental portfolios. John Holman: But the other piece of their business is loaning money to investors, so there are now... Where there didn't used to be, there are now large well-funded hedge funds and other Wall Street based organizations that will loan money to investors at much lower rates than used to be the case. I'm not sure I answered your question there. Matthew Whitaker: No, that's perfect. Yeah. They used to ask for our first born, if I recall, back in the 2003 to 2007 days. Spencer, did you have a question? Spencer Sutton: Yeah. Yeah, I did. I was just going to say when you look across nationally the landscape of the franchisees that HomeVestors has you mentioned rental houses. How many... Like what is the percentage of investors who are holding onto rentals. I know that you're going to discourage them if they're coming in and saying, "I just want to add to my rental portfolio," but are you seeing groups that have a pretty healthy mix of wholesaling, doing some rehabs, and then also taking in and growing their own rental portfolio? John Holman: Absolutely. And I just realized... Before I hit that Spencer, I just wanted to mention to Matthew HomeVestors has built a portfolio of seven large lenders, and those lenders loan money to us at better rates than you can get if you're not part of the HomeVestors organization. John Holman: Back to your question about rentals Spencer, yes, we have franchisees that have, gosh, I don't know how many thousands and thousands of rentals. I see the business as sort of a three phase business. Phase one is build a wholesale business, build a cash flow buying and selling houses quickly to investors. John Holman: Phase two is learning to rehab and retail, take a house all the way to retail condition and sell it to a homeowner. Both parts of that are challenging to learn. The third phase is after you've built a good cash flow from wholesale, then you've learned to rehab and retail houses and building additional cash flow there, the third phase is to build a rental portfolio. John Holman: I don't encourage anybody to do phase until you've mastered one and two. Those really come in order. But after you've learned to wholesale and retail... We have franchisees that learn to wholesale, then they learn to rehab and retail, and then they start building a rental portfolio, and we've had a number of them totally retire because they've built the income and the asset base that they want and they really don't need to work anymore. Matthew Whitaker: Now are you personally investing today or are you building the business of HomeVestors, or both? John Holman: Mostly building the business of HomeVestors. I'm a full time development agent, so my life really revolves around helping franchisees all over the country get through the learning curve and build a successful business. John Holman: I am a hard money lender here in Atlanta, not outside of Atlanta, so I have a lending business on the side, but my primary business is helping franchisees to learn to build a profitable business. Matthew Whitaker: In a day in your life how much time do you spend coaching? How much time do you spend talking to potential buyers of the franchise system? John Holman: I spend very little time, Matthew, speaking to candidates. I have partners that do that part, the sales part. I am 100% focused on support, so about 150% of my day is spent on supporting franchises. We actually have a team of people that do this, not just me. Matthew Whitaker: When a lot of people get in the real estate business they always get in with partners, whether they're friends or for whatever reason. Talk about some successes, things you've seen about the value of a great partnership. It sounds like you've had some great partnerships. Or the value of not having a great partnership that you've seen kind of destroy some... Because you have some visibility into a lot of people that are trying to do this. You could probably give some interesting insight into the whole idea of having a partner and best practices around that. John Holman: Yeah. Partnership in business is a double edged sword. The advantage obviously is that you've got two or more people with different skills and talents, and if they can learn to work together and leverage each other's talents they sometimes can have a synergistic one plus one equals three type effect. John Holman: The down side, of course, is that we're all humans and we all have our own way of being, and whenever we see partners, whether they're married couples or just business partners, as long as they're mature and respect each other it can be good. John Holman: When they sometimes fall into a trap of being too emotional the partnership melts down and then it really becomes a problem. So the good news is partnerships can help. The bad news is they can destroy in some cases friendships and in other cases unfortunately marriages. Matthew Whitaker: The thing I always tell people is make sure that you're crystal clear and have up front expectations, and even reduce that to writing, because when you get married everybody is excited. You've started this new business and nothing is ever going to go wrong. You're just going to make tons of money. Matthew Whitaker: But honestly, even making tons of money can create a lot of friction too, so if things go right it can create problems, if things go wrong it can create problems, and you want to make sure you basically talk about how to get out of that situation before you ever do it. Matthew Whitaker: Because, like you said, when people get emotional they're not thinking rationally, and when you get into business you're way more objective on the front end than you are in the middle of the heat of the moment. John Holman: I couldn't agree more about planning a way out. I believe if you're going to have a partnership, as you said Matthew, you be crystal clear about the roles, but also I'd like to see a business plan that's laid out that has an exit strategy. If you need to get out of it for whatever reason there's a clear, defined way to get out, and hopefully you can get out without any pain. Matthew Whitaker: And I would say a buy/sell agreement is probably one of the major things you need to have in there, to understand what it's like to buy each other out. John Holman: Right. Spencer Sutton: I thought it was interesting... Back in the day when we were in HomeVestors they had us take a personality test. I don't know if you all still do that? John Holman: We do. Spencer Sutton: But that was helpful for me and my partner, because my partner was a... I'm trying to think which one we took, but he was a high red. I mean he was our buyer and I was our seller. Like I developed all the relationships. I was the friendly guy, so I had tons of investors that I would wholesale properties to. He was the great buyer because he didn't get emotional about a deal. He just knew the numbers and made the offer and that was it. John Holman: Yeah. We still use the same personality profile and we leverage it. We talk about it all the time. It is a huge help for us both in our partnerships and dealing with the sellers that we meet every day. Learning how they behave and learning to recognize their profile and their tendencies is very helpful in building relationships with people on a daily basis, so we still use them. Matthew Whitaker: What type of personality... What type of characteristics do you see of someone that is good at buying real estate? John Holman: Well, as Spencer said a second ago, Matthew... And you'd have to understand our personality profiles, but there's four colors, but the high red, high yellow, the red is the driven A type personality. The high yellow, like Spencer, is a people oriented personality. So people that are driven that are also good with people, those tend to be really good buyers. John Holman: By the way, there are no bad personalities. There are just different personalities, and the trick is to learn your own strengths and weakness, hire a partner around your weaknesses, and leverage your strengths. Matthew Whitaker: Yeah. We're big believers in personality profiles as well and we talk about it a lot. We don't use the same thing that you all use, but we do use it and focus on it and use a thing called culture index. John Holman: Yeah. Spencer Sutton: John, man, thank you so much for being on the podcast with us. John Holman: You're welcome. I'm happy to see both of you after all these years. Glad to hear you're still in business. Spencer Sutton: We are, and we appreciate it. We know this will be really helpful for all of our podcast listeners in Atlanta. Listen everyone, this is the episode. If you have enjoyed this episode please leave a five star review. Go and subscribe. We're going to have more great guests like John Holman with us in the coming weeks so stay tuned for upcoming episodes. Spencer Sutton: All right everybody, listen. If you enjoyed this episode make sure to leave a comment, leave us a five star review. And, John, there's going to be plenty of people who would like to learn more about the HomeVestors franchise, potentially even maybe how they can become a franchisee. How can they get in touch with you? John Holman: Probably the best way is to send an email to [email protected]. That's J-O-H-N.H-O-L-M-A-N@homevestors, H-O-M-E-V-E-S-T-O-R-S.com, and I'll give you my phone number in case anybody wants to call, 404-217-7598. Spencer Sutton: All right everybody. You can find all that information on our website, theatlantarealestateinvestor.co, that's .C-O. All right until next time. We'll talk to all soon. John Holman: Thanks guys.
