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Paul Lizell Real Estate Background:
– Real Estate Investor, JP Homes, Inc.
– Virtual wholesale bank REO properties
– Wholesale between 30-50 deals a year and rehab between 5-10
– Started with fix and flips then went into wholesaling in 2009
– Over 16 years experience in real estate investing
– Based in Philadelphia, Pennsylvania
– Say hi to him at http://www.housedealsamerica.com
– Best Ever Book: Rich Dad, Poor Dad
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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluff.
With us today, Paul Lizell. How are you doing, Paul?
Paul Lizell: Great, how are you doing, Joe?
Joe Fairless: I’m doing well, and nice to have you on the show. A little bit about Paul – he virtually wholesales bank-owned REO properties. He’s wholesaled between 30-50 deals a year, and rehabs between 5-10. He started with fix and flips, then went into wholesaling in 2009. He has over 16 years in the business. Based in Philadelphia, Pennsylvania.
With that being said, Paul, do you wanna give the Best Ever listeners a little bit more about your background and your focus?
Paul Lizell: Sure. I started rehabbing back in 2001. I was rehabbing probably anywhere from 5-8 deals at a time, going on until the end of 2007, early 2008, when the market really started to drop. At that point I got out of the rehab game because I was losing money on a lot of these different deals, and I decided to shift my focus to wholesaling. This is all in the Philadelphia market – I switched basically from rehabbing to wholesaling; still doing some rehabbing, but on a very small scale. We were limited to maybe doing 3-4 deals a year rehabbing, and the rest of the deals we were wholesaling. At this point we exclusively shifted to bank-owned properties as well.
We started doing it more remotely in 2011. We started buying out of state, out in Ohio, Indiana, New Jersey, Delaware, Virginia… We continued to expand out as we got more comfortable in these markets, and just kept on growing and growing and growing. Now I buy all over the country and we do anywhere from — a lowman year is 50-100 deals a year. That’s kind of where it stands now.
Joe Fairless: Why shift from local to national?
Paul Lizell: Basically, it was more for inventory purposes as much as anything. If you find a good deal, obviously, no matter where it is, you’re still gonna be able to move it, in my view, and I enjoy learning new markets and going into different areas. It’s actually just something I really enjoy doing – I like traveling, so I don’t mind going to an area and spending three days there, learning a little bit about the market and then I start to buy in that market.
It gives you more inventory to choose from, right? If you’re just in your hometown or within a couple hours of your house, you’re only limited to a certain basket of properties. If you open it to the whole country, then you’re open to a heck of a lot more opportunities.
Joe Fairless: When you come across a deal that’s in another market, even if you’ve been there for 2-3 days, I’m sure it’s still challenging to know that specific area, so how do you determine how much the property is worth and what you want to sell it for?
Paul Lizell: That’s a really good question. That’s the tricky part, because in any market you have good zip codes and bad zip codes to find; even if I’m only there two or three days, I’m not gonna learn anywhere near the whole market; I’m gonna learn about a small percentage of the market.
So I actually rely heavily on other wholesalers in those markets and other rehabbers. You can match up with these guys on Craigslist and just find out what zip codes their buyers are actively buying in, what zip codes to stay away from… The guys that have been doing wholesaling for a while are the ones you wanna rely on, not the guys that are just new to the game.
And as far as rehabbers, I’ll tell you exactly what areas they buy in, what areas they don’t buy in and why. So those have been my best resources.
Realtors are an okay resource; they’re really your best resource for comps, obviously, but you’re not necessarily gonna get that zip code by zip code area – the good, the bad and the ugly – from a realtor as well as you will from a wholesaler or a rehabber.
Joe Fairless: That’s great input. Say you’re going to a new city… You’ll go on and you’ll visit it for a couple of days; now you’re coming back, now you’re getting some deals… You’ll go on Craigslist and identify wholesalers and rehabbers and see where the wholesalers are selling properties and the rehabbers are rehabbing them.
Paul Lizell: Yeah, absolutely. And if I’m planning on going to that market – say I’m going to St. Louis – I’ll actually go on Craigslist beforehand, trying to phone interview a few of these guys and maybe meet one or two of them while I’m out there, so that way I’m not doing it twice. I’d rather just go out there once, meet with these guys, find out what their buyers are looking for, do some joint venture deals…
We’ve done a lot of joint venture deals with a lot of different wholesalers out there, and that’s been a big part of our business, and it helps lower your risk for mistakes when you’re doing it that way.
Joe Fairless: What is a tough deal that you would have to wholesale?
Paul Lizell: That would be deals that we get in more rural areas, the ones that are out there, the ones that are not in the cities, not in the direct suburbs to places, and less buyer pool, obviously. Those end up being the harder deals to move, that is for sure.
Joe Fairless: I ask that question because I actually came across a wholesale deal in a very rural area of Pennsylvania and I don’t wholesale; it’s just someone who I knew and he had a portfolio of like 20-25 single-family homes in a town. A Wal-Mart gets more traffic than the amount of total population for this town, in one day. And it’s not my business model, so I talked to a couple people who I knew wholesaled, and none of them were able to move it because it was in such a small town… So who is your buyer for a remote town with a property?
Paul Lizell: This is one of those interesting things to find out… Because these places are more remote, you also don’t have great Wi-Fi access in those areas, and you have an elderly population. We sell the majority of our properties through newspaper ads in those markets, believe it or not. Newspaper ads do the best, much better than Craigslist or any of those things, and direct mail marketing.
We direct mail to cash buyers lists in those areas, wherever is close to it. Those are our best buyers. When we get buyers through Craigslist, we generally are getting somebody who is looking to live in that property, not necessarily to do it as a rental. Most of the time we get somebody who’s looking to owner occupy the property, and they happen to have some cash.
But yet, newspaper ads, believe or not. It’s the most expensive; it’s not cheap to do newspaper ads, but they work pretty darn well in rural areas.
Joe Fairless: That’s a great tip.
Paul Lizell: Anywhere there’s an elderly population, newspaper ads work well, because they still read them. We’re online doing stuff, they’re still reading the print.
Joe Fairless: Paul, you’re doing 30-50 deals a year, rehabbing 5-10… Are the rehabs local?
Paul Lizell: Most of my rehabs are local. However, I have two that I did down in Southern Florida – my dad lives down there – and I have four that I’ve done this year in Tucson, Arizona, that have been rehabbed… Some of them just paint and carpets, some full rehabs. The only reason I do that in that area is because I have a really good agent who basically runs the whole rehab for me. I pay him a little bit extra, especially on the commission side and off the side… But that’s the only reason I do that in that market. If I don’t have somebody like that, I won’t do that, because that’s remote rehabbing, and it gets really hard, and it gets really tough to monitor and control. I try to keep most of my rehabs within about two hours from where I live.
Joe Fairless: What’s a lesson learned as you’ve scaled your business, with wholesaling in particular, and you’ve gone from local to now national…? What can you tell us about something you’ve learned along the way?
Paul Lizell: Best lesson learned is don’t buy those ugly piece of junk super cheap properties, because they can be really difficult to move. I guess last year I did four or five of them… I lost money on a couple of those, and they just drew so much of my time; they’re so difficult to move because of the amount of work needed, so I’ve gone away from those properties that need a ton, and just tried to go to the ones that need your more basic rehab, not ones that need everything done – foundation issues, or anything like that. That’s a bit lesson learned there on that.
Joe Fairless: Why does that matter if you’re wholesaling it?
Paul Lizell: On two of those properties in particular we’ve had buyers under contract three separate times on both of them, and they all fell off. Then we had to lower the price to get it to a really good, attractive number, to where somebody stuck with it. I think it was just too much time to think; they were looking at it, seeing how many repairs it needs and it gets above what they’re looking to do and they just bail out.
Then we got some deposits on that, which helped, but [unintelligible [00:10:16].17]
Joe Fairless: Paul, what’s your best real estate investing advice ever?
Paul Lizell: I’m gonna make it to this market right now…
Joe Fairless: Okay.
Paul Lizell: The interesting thing about the market we’re in – we’re in a different market than we’ve been in since 2005-2006, where you can make money almost doing anything. It’s not quite as good as it was then, but still pretty good.
Right now a lot of my wholesale deals I’m getting, I’m listing in the MLS in different areas, flat fee listing agents, and we’re moving them at higher dollar amounts than we would if we were just going on Craigslist or sell them through direct mail marketing, or sell them to our cash buyers list. We’re actually doing better there than we are on your traditional sites. Right now that is a really good market to hit, as well as just doing your wholesaling, where you just make it mortgageable. Just do some paint and carpet, make it look good, make sure you don’t have any chipping paint or anything like that… That is a good one right there.
I have other things I could probably give as well, if you wanna hear the…
Joe Fairless: Yeah, please do.
Paul Lizell: Another great resource for me – I’m not big fan of rentals… I’ve had rentals, I sold all of them off; I’m down to one and that one’s gonna be sold over the next…
Joe Fairless: Why?
Paul Lizell: I hate the hassle of them is what it comes down to. The hassle of them just drives me nuts; they’re such a time suck… I try to be lazy with my business. Lazy in this way – I wanna get the most out with doing the minimal effort. I think everybody wants that life, right?
Joe Fairless: Mm-hm…
Paul Lizell: Rentals, they just drag every little bit of energy out of you. They can be difficult, but they can be really fruitful long-term. So I’m losing something long-term, but what I’ve switched to is an owner finance model, and I’ve done this a lot with investors right now to avoid the Dodd-Frank Act, but I also still do owner financing to owner occupants as well.
Those are far less maintenance, I don’t have to worry about it if the toilet breaks, or if something goes wrong with the dishwasher [unintelligible [00:12:01].04] That’s not my issue, I’m just collecting the note and I don’t have any other headaches with it. My only headaches are making sure that taxes are paid, that insurance is there covering and protecting me, and that they pay. That’s pretty much it.
Otherwise, they’re low-maintenance, they’re nice and easy, and that steady monthly income is good. Even though it’s only set for a fixed period of time, I really prefer those over rentals… But there are tax drawbacks to them, obviously.
Joe Fairless: Yeah, thank you for mentioning the pros and cons. I love how you’ve said this objectively. So on the tax disadvantages, what are they?
Paul Lizell: With rentals you get to write off depreciation, you get to write off your interest expense, your real estate taxes, your insurance. On the note, I’m not really getting to write off anything. I don’t have any depreciation; it’s all pure income coming in, so it just adds to my tax liability, unfortunately. But if you can put some of those notes into your IRA, then you kind of avoid that. Then you’re kicking it down the road.
It’s great for building IRAs. I really am a big fan of using them to build your wealth in your IRA or your 401k, and you’re not worrying about the tax ramifications; it’s down the road you’ll have to worry about that.
Joe Fairless: What is your end game then, if it’s not having a portfolio of properties that are eventually paid off and bringing in monthly rent checks? What are you doing for the long-term?
Paul Lizell: My long-term goals is I have two of them that I wanna get into, and this will be a little less maintenance. One, I wanna get into self-storage facilities; that would be the rental income I’d like to have. They’re much lower maintenance. There’s maintenance, but there’s nowhere near the same kind of maintenance as there is on a traditional rental. That’s one source.
The other one – I may get into apartment investing. That’s a little more maintenance, obviously, but…
Joe Fairless: Yes, it is… A lot more maintenance. [laughs]
Paul Lizell: Yes, yes. You’re gonna have costs, you’re gonna have so many more added costs on that… Which is why I prefer, rather than do the apartments [unintelligible [00:13:56].17] worry about the toilets, you’re gonna have maintenance, you’re gonna have people, you’re gonna have to constantly have calls to make repairs… Self-storage isn’t nearly as bad, and they’re pretty profitable, but they’re pretty expensive right now.
Joe Fairless: Yeah. With my single-family homes – I only have three single-family homes, but they are so turnkey it’s ridiculous, and it’s because of the management company. Compared to apartments, holy cow… That is much more active. So if you have these two options and your focus is on being passive, go self-storage!
Paul Lizell: I totally agree with you, Joe. And the single-families are far better than the duplexes. I’ve had duplexes, quadruplexes, triplexes, and they’re much more of a time suck and they cost a lot more money and there’s a lot more turnover of people. The single-families I’ve had – I’ve had people in there for 5, 6, 7, 8 years at a time. I’ve just [unintelligible [00:14:49].03] on our house, which is part of the reason I sold off some of my rentals, to pay for the addition here, and I just got tired of some of the maintenance on some of them, and some of the turnover on certain ones.
It’s just like a stock portfolio, you’re getting rid of your dogs… And now I’m getting rid of one that has a very good cash flow, but it’s turning into a note. So I’m getting my money back on the down money that the buyer is putting in there, and then I’m having a note on the property, so I’ll be getting long-term income from it that way.
Joe Fairless: Okay, very cool. Nice, creative approach. I sold off one of them because it just wasn’t like the others, and kept the other three. Alright, Paul, are you ready for the Best Ever Lightning Round?
Paul Lizell: Oh, absolutely.
Joe Fairless: Let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: What’s the best ever book you’ve read?
Paul Lizell: Rich Dad – it’s truly the best one.
Joe Fairless: What’s the best ever deal you’ve done?
Paul Lizell: A rehab where we made a little over 100k. That’s a good one.
Joe Fairless: Can you elaborate on how you were able to do that?
Paul Lizell: It was a bank-owned property. We picked it up for 60k, we put about 40k into it, but I we sold it for about 230k on that one. It was just a really, really good one. We were just kind of lucky. It was sitting on the market for a little while, it was listed much higher, they took our low bid and we ran with it. We really did it up; we really put some good money in and really had some nice upgrades on it. We finished off the attic, which we made a big master suite up there. We added a full second bathroom and another half bathroom, and really expanded the kitchen. So it really just made the place beautiful and sold pretty quickly.
Joe Fairless: Best ever way you like to give back?
Paul Lizell: Coaching. I coach travel baseball. I coach my middle son now; last year I coached my older son. I coach basketball. My 12-year-old team, we’re going to Cooperstown this summer, and there’s nothing like giving back to kids and teaching them how to get better at sports and correlating sports to life; that’s my favorite way to give back.
Joe Fairless: Did you say they’re going to Cooperstown?
Paul Lizell: We’re going to Cooperstown. Every 12-year-old team is eligible to go to Cooperstown; you have to get on the waiting list there. Luckily, our township has had it every year, so we’re there and we’re hoping to get two teams in there next year. It’s a lot of fun. It’s very expensive, it’s like $1,000 a kid, plus the pins, pants, and all these different expenses that come in there, but it’s a ball, it’s so much fun.
Joe Fairless: What’s a mistake you’ve made on a real estate deal that you can think of?
Paul Lizell: Okay, so this goes back to when I was rehabbing about eight at a time in 2007-2008, when the market started to tank. I had some properties where I was pouring in 75k-100k into these rehabs, and the market just totally tanked. I lost money on six out of the eight. What it thought me is 1) to scale back and pull back on what you put into a rehab, and also spread yourself more even. I wanted o diversify my portfolio, which is why I got into wholesaling… So you always have income coming in, rather than waiting for just these flips to close, which is taking you 3-6 months by the time you fix that are resell it.
Joe Fairless: Yes, or stagger them a little bit.
Paul Lizell: Yes, exactly, so you’re not always so cash-strapped and waiting for the next check. The great thing about wholesaling is every week we’re selling something and we’re getting income coming in, so it’s great. It’s only maybe 10k, compared to the 30k-40k that you can get on a rehab, but still, it’s constantly turning and you’re not doing anything to the property.
Joe Fairless: Yeah, and you don’t have a lot of risk with that property, because it’s just marketing costs and whatever your teams costs, right?
Paul Lizell: Exactly.
Joe Fairless: What is the best place the Best Ever listeners can get in touch with you?
Paul Lizell: They can reach me by e-mail. It’ll be my first and last name – PaulLizell@gmail.com.
Joe Fairless: Do you have a website?
Paul Lizell: I do. It’s HouseDealsAmerica.com.
Joe Fairless: That is in the show notes, for the Best Ever listeners… You can click on that, or just e-mail Paul directly. Paul, you taught us how to wholesale a property in a remote town, and that is you simply pick up the phone, call the newspaper ads department and place some ads, because there are older populations, and if you’re catering to an older population in a small town, then that’s where they’re consuming their news. You’ve been very successful and had some success with selling properties via newspaper ads in small towns; that’s a real-world lesson for me… When I was trying to do that about a year ago, or whenever that was when I came across this one portfolio randomly.
Then also your lesson at the end: 6 out of 8 homes, lost money when things shifted in the marketplace… So we should diversify our portfolio, and there’s many interpretations of that, one of which is to stagger them; another would be to diversify your portfolio and what you invest in, and then other ways. Then lastly, scaling outside of your local market into national markets and how you identify good areas and good team members, and that’s initially through Craigslist, seeing where rehabbers are rehabbing properties and wholesalers are wholesaling properties, in what zip codes.
So thanks so much for being on the show, Paul. I hope you have a best ever day, and we’ll talk to you soon.
Paul Lizell: Thank you so much, Joe. I appreciate it.
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