Joe has 40 years of investing under his belt. He has done everything from buy and hold to flipping with no money down. Joe is an orange county investor, and has been through a couple market downturns. To say that he knows what he’s talking about would be an understatement! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Joe Homs Real Estate Background:
-Focus on fix and flips and has over 10 buy and holds 40 years of investing experience
-H&M Real Estate Services
-Based in Orange County, California
-Say hi to him at www.joehoms.com
-Best Ever book: Money Dynamics by Venita Van Caspel
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Joe Fairless: Best ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless and 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 fluff. With us today, Joe Homs. How are you doing, my friend?
Joe Homs: I’m doing great, and you?
Joe Fairless: I’m doing great as well, I’m looking forward to our conversation, because our Best Ever guest, Joe Homs, has 40 years of experience in real estate. He is focused on fix and flips, he’s based in Orange County, California, and his company is H&M Real Estate Services. You can say hi to him at his website, which is his name (really easy to remember) JoeHoms.com. It’s also in the show notes page.
With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Joe Homs: Like you said, I’ve been investing in real estate for 40 years. I purchased my first home when I was 21 years old, and I really haven’t looked back since. I’ve basically done – you name it, I’ve done it. No money down fix and flips, which is what I focus on now. I buy at the courthouse steps, I work through wholesalers, I go to the MLS, I’m a licensed real estate agent… I pretty much do everything – property management… You name it, I do it. I’ve done it all over the last 40 years.
Joe Fairless: You’ve been doing it for 40 years… Where have you gravitated your business towards, based on what you’ve learned over those 40 years?
Joe Homs: A particular product or market, is that what you’re asking?
Joe Fairless: However you wanna interpret that.
Joe Homs: Okay. Everything I do is here in Orange County, California; it’s very expensive. I do your buy and holds, but I don’t do buy and holds now. I did buy and holds when we had the most recent downturn, which is – my god – ten years ago now. Perfect example – I bought ten condos in a local city here, [unintelligible [00:04:06].19], all two-bedroom, one-bath units; I paid $100,000 for each of them. I’m in the process of getting rid of them now, starting to sell them because California is very cyclical, in that every ten years we seem to have this massive bust in real estate prices.
If I was 22 like I was starting out, which is what I did, I bought several condos back when I was in my 20s and 30s, [unintelligible [00:04:34].01]; I still own quite a few of those. Those are really my bread and butter at this point as far as cash flow goes. But ten years ago, with the recent downturn – I’m gonna be 62 here pretty soon, and I don’t really wanna ride the wave back down, because like most people know (everybody should know) you can’t take it with you, so it’s time for me to start selling some of those profits that I’ve made.
I am doing some exchanges on some of them into single-family, because I think that’s gonna be our next big wave. People just like me, the baby boomers are gonna start downsizing, and that’s why I’m looking at single-family residences, one-storeys.
Joe Fairless: The ten condos that you bought that are two-bedroom, one-bath for 100k each, so a million dollars all-in – you’re selling them off one by one… How much are you selling them for?
Joe Homs: 300k. Right before the downturn – this was the crazy part. I’ve been through three of these downturns already. The last one was the craziest. Right before the downturn, these two-bedroom, one-bath condos were selling for 400k. They’re back up to 300k; I would say by the end of the year they’re gonna probably be 325k, but again, I don’t wanna roll the dice, in that something may happen here in the future; not that I’m predicting that… My crystal ball says we’re doing good as long as the job market is the way it is, interest rates are pretty low, the banks aren’t getting out of control with what I used to call “warm body loans” – if you had a warm body, they gave you a loan. Now it’s the opposite – they want your first-born, your right arm, your leg, everything else before they give you a loan. So I think we’re good now.
For me it’s mostly for my age and that I’m getting older; I just don’t wanna have to deal with a lot of this stuff as I’m getting into my 70s.
Joe Fairless: Knowing that you’ve got 40+ years of experience, what’s something that when you hear someone who’s just getting started say about either how they’re approaching investing, or how they’re running the numbers or how they’re picking markets – anything – what’s something where you’re like, “Oh, man… What are you thinking? Don’t do that. That’s ridiculous!”
Joe Homs: I’d say to everybody out there, you have to do your homework. If you call me and you ask me about Orange County, California, I can tell you anything and everything that has to do with Orange County, California. I can’t tell you what’s going on in Ohio, I can’t tell you what’s going on in New York… I do meet probably 2-3 new investors a week through one of my other channels that I use, which is BiggerPockets.com, and what I hear from them is “How do I get started? What do I need to do? I don’t have any money. I live here in Orange County.” I would say meet up with people like me, get as much experience as you can, start to learn the real estate process… There’s just not one thing you can do in real estate, there is a multitude of things you can do. So really kind of educate yourself as to what’s going on with real estate.
What I hear that kind of drives me crazy – and I don’t know if this is working back East or in the Midwest or where, but “Buy multifamily, move into one and then go from there.” Well, if you’re here in California, you just can’t do that, honestly. In Orange County, to live in one of these fourplexes, multifamily units that’s gonna be in a decent area you’re gonna pay probably 1.2-1.5 million dollars. When you get up to that price range right now, the numbers just do not work… But I do hear that quite a lot, and it’s kind of like “Okay…”, it’s probably somebody that has no clue at this point.
Joe Fairless: Well, they don’t live in Orange County, because that does work in more city than it doesn’t work. I think Orange County, New York City, Miami – cities like that are kind of an anomaly, but it does work in most. But yeah, 1.2 million just getting started… That’s a lot of piggy banks that you’re gonna have to raid in order to come up with the down payment on your first investment property.
Joe Homs: Absolutely.
Joe Fairless: So what’s one area of real estate that you have found very profitable, either a lead generation or a tactic that you have continually done over the years?
Joe Homs: A lead generation or a tactic… I buy maybe four or five properties off the MLS a year, and what I focus on on the MLS are a couple of things. One, inexperienced agents that have no clue and price the home too low. I love probate sales because people don’t wanna go in and fix mother’s or grandmother’s house or whatever they’re selling; they want the money as quick as possible, and I’m able to afford to buy them out cash, so I focus on really those two things.
With real estate agents as well, I will go to a listing agent directly, even though I am a licensed agent here in California. I’m looking for deals – that’s probably the most difficult thing to find right now here in California, and be able to find one that actually works and you make a profit on. So I have no problems going to listing agents. For example, last weekend I went to a probate open house; come see it, you’ve got a two-hour window… Very literally, 100 people there. Gotta work through all that fog, so I went to the listing agent directly, I told him who I was – “I’m an investor, I’ll buy the home for cash; tell me at the end of the day what all your offers are, I’ll go a thousand dollars over that and I’ll let you represent me.” That gives me the ability of kind of going to the agent’s [unintelligible [00:10:37].00] in that he’s gonna get a dual commission on that deal, so he’ll tell me what the highest offer is, I’ll go over a thousand, he’ll represent me and I’ll end up getting the property that way. I do that quite often, and then like I said, other agents that are not as experienced go in and, whatever…
I had one agent that pissed off a tenant; a tenant wouldn’t show the property… I don’t even care if I don’t see the property sometimes, because I do buy at the courthouse steps and I’d say 90% of the time I don’t even see the property there. But this agent pissed off the tenant; finally, the price came down to where it came up on one of my searches. I call the agent, we went over there, looked at it, I gave him a price, he accepted the offer. Once we got in, it was more than what I had thought for repairs, so we lowered the value by 25k, and they accepted the offer. I ended up getting a commission on that deal… So it works both ways. I just pick on inexperienced agents that are new on the market and don’t really know a lot of what they’re doing with real estate. I also work with wholesalers as well, who put properties under contract and then sell them to people like me who have cash.
Joe Fairless: This is gonna be an ignorant question, but I didn’t know that agents were allowed to tell the potential buyers what the highest price was. I guess I just assumed that was always done in secret.
Joe Homs: No, you know what? It’s kind of like another one of those misnomers… The other thing I hear about California is that we’re really not a landlord-friendly state, and that’s not true. When I buy properties at the courthouse steps, you have to evict somebody; I can get them out within 30-45 days, so that’s not a problem. If they end up fighting it, if they’ve been through this system before, it will take me a little bit longer, but that’s kind of not true.
Back to the topic about price, there are a lot of agents that will not divulge what the price is, but let’s look at it from the seller’s point of view. This is your home and you have an agent, and somebody like me comes, and — what is your goal? Your goal is to get the highest price. What am I offering? I’m offering to give you the highest price, plus $1,000. Isn’t that higher?
Joe Fairless: [laughs] Yes. And you’ve said that before to the agent, I’m sure, who says “No, I won’t tell you.” What do they usually say?
Joe Homs: It depends on what they’ve been told by their office manager, what they were trained… I’ve actually called
[unintelligible [00:13:16].16] because all agents here in California can call an attorney at any time and get a legal opinion. I called them before and they said “No, there’s no law, there’s no code of ethics or anything that precludes anybody from giving you what the highest price is.” So if they’re gonna do the best they can for their seller, then they should tell you. They should say “Here, this is where we’re at.” And I know there’s some websites out there, because I look at them… I don’t buy foreclosures on the websites; that would be another hour conversation about my opinion on that… But there’s many websites out there that will actually tell you what the price is, and you can go up from there. So they’re telling you what the highest price is.
Joe Fairless: Right. That’s something that was right in front of my face the entire time, but I never actually thought about just taking that approach, where you go to the seller’s agent if you like the opportunity and you say “I’ll pay $1,000 more and I’ll let you represent me.” What happens if they just make up an offer?
Joe Homs: Well, they can. We’re all human, you know? The best thing that I do is I work my numbers, as far as flipping goes. It’s a total numbers game, that’s all it is. I can buy a house in the worst neighborhood and the price is going to reflect accordingly. I can buy a condominium in a bad neighborhood. I may not put in the best type of flooring, I may pay $2/square foot for a laminate, whereas if I’m flipping in 800k-900k neighborhood, I’m probably spending anywhere between $10-$12/square foot for the laminate, and that’s usually glued out. So they’re totally all a numbers game; to me it’s just numbers, that’s all it is.
Joe Fairless: And I’m sure there’s been a scenario where that agent has come back to you and said “Oh, it’s such and such price”, and that price happens to be more than what they were asking, and if the numbers don’t work for you, even though you already said “Hey, I’ll buy it, plus a thousand”, what do you tell them? Just “I’m not gonna buy it”?
Joe Homs: Again, he’s calling me back, he’s telling me what his highest offer is, so I haven’t heard it yet. So when he calls back and says “Okay, Joe, this is our highest offer. You said you’d pay that plus the thousand”, I work my numbers, and if it doesn’t work out, then I tell him “Sorry, have a nice day. Sell it to whomever wants to pay you that price, because I can’t buy it from you at that price.” But at least I know I’ve cut out all the 10-15 agents that have submitted offers that have no clue where their offer is at. At least I know.
Joe Fairless: Have they ever come back to you after you said “No, it doesn’t work” and then later they’re like “Oh, well actually, how about this price?”
Joe Homs: Oh yeah, I have that happen all the time, absolutely.
Joe Fairless: Yeah, I figure, because they don’t wanna think that they are not being forthcoming with you, but I would imagine they would try and get more than what any offer they actually got, and then you say no and then maybe they go down a little bit, even though both offers perhaps aren’t even real.
Joe Homs: That’s absolutely correct. In honesty, I don’t blame them if they do that. Again, this is a numbers game for me. If you come back with an offer that fits in my numbers, that I know at the end of the day I can make a profit on, I’ll say yes. I may be paying a little bit more because he [unintelligible [00:16:49].22] the number a little bit; I would never know that, but again, it’s just a numbers game for me at that point. And yeah, that can happen.
Joe Fairless: What’s been your least favorite deal?
Joe Homs: Good question! My least favorite deal… I learned a lot. I had an investor who decided that he wanted to invest in flipping a property with me. He was a cabinet maker, a very good friend of mine, still is a very good friend of mine. In fact, we still have five buy and holds together under an LLC that we formed… But this was one of those things that after 40 years you learn, make sure you have everything in writing, be careful working with family and friends, make sure everybody knows what they’re doing on the deal – all those mistakes that I’ve made.
He was a cabinet maker, he said he can make the cabinets for the kitchen; we bought the home, it was hard money financing so it was very expensive every month to pay that loan. It took him four months to do the cabinets in the kitchen; we were headed towards a downturn. Of course, he thought he knew better than me. We priced the home too high, I listened to him when I shouldn’t have, and so we were on the market for probably eight months before I finally said “Enough is enough”, I dropped the price low enough and we ended up selling, and that’s the only property that I ever lost money on here in California. That was because I just should have taken control early on, but he was a very good friend of mine; again, he still is, but that was a big lesson that I learned.
Joe Fairless: You said that was the only property you lost money on in California. Are there examples outside of California that you’ve lost money on?
Joe Homs: No, I’m a California, Orange County investor. The only time I invested out of state – I did that once, same guy… He went to Vegas, and that was about 20 years ago. The thing to do back then was to buy brand new homes by builders first phase in a multi-phase community. We bought a single-family in Vegas in January, we paid 125k for it. By the time it was finished, built and had about four, five phases, we closed the escrow in September and we ended up selling it two weeks later for 175k. But everybody was doing that back then, everybody was doing it.
Joe Fairless: What is your best real estate investing advice ever?
Joe Homs: I’d have to say educate yourself. Find a mentor, somebody who’s done it, especially nowadays… I have no idea where you’re at; obviously, you know I’m in California. Here we are, talking over the internet… Understand my process over 40 years – no phone, no internet, nothing really to talk to anybody about. I go to meetups now, I do a lot of networking… That’s what I would say – just network with people, educate yourself, especially if you don’t have any money right now. That’s why I tell people in California to just wait for the next downturn, because it will happen again. And once it happens, you need to be educated enough that you’re gonna move in at the right point in time. Do your buy and holds, and then hold on to them. Then once they get to a point where they’re not cash-flowing, you [unintelligible [00:20:11].09] then you can start flipping properties.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Joe Homs: Okay.
Joe Fairless: Alright, then let’s do it. First, a quick word from our Best Ever partners.
Break: [00:20:25].20] to [00:21:19].13]
Joe Fairless: What’s the best ever book you’ve read?
Joe Homs: A book by Venita VanCaspel. It was called The Power Of Money Dynamics. I read that in my early 20s, it changed my life. I don’t think it’s still out in print; I’m sure you could find it somewhere. Basically, there are several sections in it; she talked about the stock market, she talked about different things, and she talked about real estate. What she suggested in real estate is that you buy a home every year – one home, at the very minimum – for ten years; by the time you get ready to retire, you will live comfortably. I’m a perfect example, and I took her advice.
Joe Fairless: Best ever deal you’ve done?
Joe Homs: Best ever deal – about two years ago, teaching my son-in-law the business, teaching him from the ground-up, like I learned, which means that we are actually there, swinging a hammer. My father taught me the business, so I’m very talented and I can do probably 85%-90% of a rehab. I didn’t wanna just give him my money and say “Go out and start flipping”, I wanted to teach him from the beginning.
First project we did together we ended up making $80,000. He was working at the time, he took some time off to do the rehab. He was making about 45k-50k, which is not really anything here in California. He soon quit after that and just started doing flipping with me full-time.
Joe Fairless: What’s a mistake that you’ve made on a transaction that you can think of?
Joe Homs: Other than the one I mentioned… I think that’s probably the biggest mistake. The mistake was listening to somebody less experienced, and I listened because he was an investor, a good friend; he put half the money, and he was putting half the time in the rehab as well. We were still doing the hammer-type of rehab at that point in time. Right now we actually hire contractors to do it for us.
I think that when I look back on that, not having control of the entire transaction from A to Z was a big mistake.
Joe Fairless: What’s the best ever way you like to give back.
Joe Homs: I actually do that all the time. I mentioned Bigger Pockets… I connect with people on Bigger Pockets and I like to get the young people before they get caught up in this guru atmosphere that we’re in, in that “Come pay me 40k-50k and I’ll show you how to flip properties.” There’s several gurus, and I don’t wanna mention any names… But there’s several gurus out there, and I just try to get young people and stop them from doing that. I tell them, “I can give you anything that you want, you just need to ask.” I have an office, I meet with the wholesalers every Saturday here, I train people how to wholesale, I’m training several people how to flip here in Orange County, the proper use of hard money, things like that. I do that every day, I do that all the time.
Joe Fairless: How can the Best Ever listeners get in touch with you?
Joe Homs: Best way – you can go on my website, it has all the information there, or you can go on Bigger Pockets and connect through Bigger Pockets. Like I said, my website has all my information on it – address, phone numbers, e-mails… Everything’s on there, so if somebody wants to get a hold of me, that’s probably the best way to do it.
Joe Fairless: And the link to your website, joehoms.com, will be in the show notes page. Best Ever listeners, you can just click on that and go check it out. Thank you for being on the show. Thanks for giving a lot of practical tips from the lessons you’ve learned over the last 40 year investing, on the acquisition front where you have the conversation with the seller’s representative and say “Hey, I’m gonna pay $1,000 more than the highest price that is offered, plus I’ll let you represent me.” Then also the lessons learned on your least favorite deal, where it was listening to someone who was less experienced than you and not having control of the opportunity. Then also being careful now with family and friends partnerships, as well as making sure that you have everything in writing.
Thanks for being on the show. I hope you have a best ever day. I really appreciate our conversation, and we’ll talk to you soon!
Joe Homs: Thank you very much for having me, I appreciate it.
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