REIA 125 Bill Ham: Real Estate Raw – The hard truths of Real Estate Investing

Welcome to Real Estate Investing Abundance, the show for busy, fulfilled professionals like you to learn how to develop financial independence built on solid passive real estate investments. Now, here is your host, Dr. Allen Lomax.

Enlightened investors, thank you for being with us today. I'm your host, Dr. Allen. Today we took a look at the hard truths of real estate investing. Bill Hamm has been in the business of real estate for 16 years, and he has published 2 books, Creative Cash and Real Estate Raw. So Bill, take us into the program by sharing with us a memorable experience from your formative years that helped you to be who you are today.

Oh, thanks, Allen. Thanks for having me on the show. Memorable experience. Oh, there's so— where to get started? I think one of my most memorable experiences was reading Sun Tzu's The Art of War. I know a lot of people talk about that book and a lot of people have mentioned it. There's a lot of books on, you know, how to use it for business and all that kind of stuff. A lot of cliché stuff, I get that. But, you know, my moment, my founding moment was when I was reading the book and I realized, and I won't go through the whole story in the book, but basically I realized that I was going back to my safe territory every time I got nervous about moving forward in life. And specifically it was closing my first real estate deal. I was terrified and I had a full-time job. And so what I kept doing was every time I would get close to taking action or close to doing something that would cause me to commit, I would get fear at the last minute and I would run back to the job. And so I think sort of the developing moment, reading some of the lessons in that book, was that, you know, we need to cross that bridge and set it on fire and show ourselves that's the way home. You know, and I— so what I had to do was really just commit and, and take action and just, you know, go headlong into it and, and just figure it out after that. So after reading that book, I, uh, turned in my 2-week notice and quit my job as a corporate pilot and went into real estate full-time. So, uh, that was kind of my aha moment. I closed one duplex. I had a whopping $300 cash flow a month, and I had saved up $10 grand for And that was all the money I had to my name. And I had read that passage and I realized that the mistake was every time I would get close to taking some kind of action that made me nervous, I would run back to the safety of the job. So the only way to really push myself out there into enemy territory, if you will, was to burn the bridge to the way home, and that was the job. So not necessarily recommending everybody that is listening to this run out, quit your job, and go into real estate. I'm not suggesting that, but— For me at the age of 28, and that's when I went into real estate full-time, it was the right move for me. So that was probably one of my most developing moments was that realization that I was gonna have to commit, you know, hell or high water, I was gonna have to commit, take action and live with the results. And I did. And that was a path less traveled and the right one for me.

That definitely is a path less traveled and that definitely is burning the bridges and In a good way.

In a good way.

I'm glad it turned out for you. It could have gone very sour for you, but you were able to deal with your fear in conjunction with that, even after burning those bridges. And sometimes people in similar situations who have burnt their bridges become overwhelmed with their fear and aren't able to work, work through that. So I guess know yourself before you burn those bridges.

And it did go bad for me multiple times over. I just didn't quit.

You just didn't quit. I just didn't quit.

So, I wouldn't want everybody to think that I was just an overnight, you know, up and up and everything's been successful the entire time. That is not true. I've had miserable, miserable failures. I just didn't quit.

That speaks volumes for who you are and your ability to deal with those fears because they can become paralyzing.

Absolutely.

But you actually worked through that. Well, I'm sure your start in real estate is different than many people because not many people are willing to burn those bridges. So, how did you get started?

Yeah, easy story. I was, I was I was flying airplanes, just a normal living, normal job. And I saw friends of mine who were out flipping houses. And I thought, all right, these are normal people. These are my friends. They're dumb like me. There's nothing special about these guys. We were all at the bar last night drinking the same beer, except I went up and went to work and they went out and flipped a house. And they made as much money flipping that house as I made working all year. And I went, wait a second. Something's not right here. These are normal guys. And in the morning, when the sun comes up, we make different decisions and we're leading different lives. But yet here we are in the evening at the same feeding trough. And I'm going, these are not special people. These are normal friends of mine. What's wrong here? That was kind of my realization moment. And so I spent about a year studying, reading, just kind of digesting information. And that's when I finally came to that moment of, you know, I can sit here and study and read all day long. Someday I'm going to have to actually just take action. And I can't sit here and think that I'm going to never fail and that I'm going to get it all right. And I'm only going to take the actions that guarantee that I do everything correctly. I had to be willing to understand that there was going to be a fair amount of failure In my path to progress. You know, you can't learn something without getting it wrong sometimes. That's called learning, right? And so I kind of had to— that was, that was the bridge I had to burn. It really wasn't so much the job, it was the mindset that I had to burn. The job was fine. Jobs was really irrelevant one way or the other. It was my mindset that needed to burn, the mindset of fear and falling back to safety every time I was challenged. And that's how I ultimately, um, you know, got, got— became successful and started a career doing something other than working.

Well, take us through. You had the duplex, I guess, before you left the job. Had you closed on it?

I had closed the duplex, but not maybe a few months. I'd owned it maybe a few months before I quit. So not— no, no amount of time really.

But yet you were still being held back by putting in additional offers and what have you on that. Well, well, take us through that. You quit the job, you burnt the bridge. What all happened after that?

I found out real quick I wasn't as smart as I thought I was. So that was lesson number one. I got a big old slice of humble pie and I realized that it wasn't as easy as I had thought and as easy as everyone kind of makes it out to be, especially these gurus on these late-night commercials and stuff like that. So I realized that there really was real work and I was going to have to put in the time and the energy and actually go out and do it. And so I did, which was a convenient point of view because the only other option was starve. I had no more jobs. So it was go out and figure out how to do real estate or don't eat food. And so I kind of liked real estate instead of starving. So I just got very active and And I learned to become a problem solver because early on, I was 28 years old when I went into real estate full-time, 16 years ago now. I've been in the business 16 years. And at the time, I had no credibility, I had no experience. It's a very difficult model to get started. I had no money. And so I had to really learn how to solve problems for sellers in exchange for access to their real estate. And that's actually what led to the book Creative Cash, which is the All of the techniques I used to get into real estate early on when I didn't have money. So it's things like seller financing or lease options and all that kind of stuff. It's fine. But it really boils down to solving someone's problem. If you can do that, that's a job that pays well. It doesn't matter what business you're in. If you can solve problems, it pays. And so I just happened to solve real estate problems. And that's how I ultimately got started in the business. I was Mikey. Give it to Mikey. Mikey, leave it. Well, if you had a junk property or some kind of Distressed asset, give it to Bill. Bill will take care of it. And so, I just did a lot of dirty jobs early on in the business in order to pay my dues and to learn and to grow a career. And now I have a very large portfolio and have been doing it for a long time, you know, but did not start that way. It was not an overnight model at all.

Well, how do you put creative financing to work in solving problems and obtaining real estate?

Lots of different ways. So, it's what I call the SPY technique. And it's something that I developed and have trademarked and it's S, S-P-Y. And it stands for seller, property, you. And that's the order in which you want to look at a real estate deal, all real estate deals. You know, I have a lot of students and I've had hundreds of successful students out there close deals. And the ones that really used these techniques always used that SPY technique. They realized that the deal was really based on the seller, the person, not the real estate, not what they want. So we learned to sit down and find out what motivates You as a seller. What is it that you want? What are you trying to accomplish? And I want to create an offer that solves your problems first. Then I look at the property and I say, okay, what is wrong with the property? Now my offer needs to solve the property's problems. And then lastly, what do I want? And is this offer good for me? Most people kind of reverse that and they say, well, what do I want? I want this, I want that, I want, I want, And that's not how you go out and build a business. You have to serve first. And so that's where I developed the SPY technique to kind of articulate to people that it's a problem-solving business. All businesses are. And if you'll kind of follow that seller, property, you model of creating an offer that solves problems, you'll exponentiate your acceptance. So, you know, a more detailed answer is there's lease options, seller financing, there's lots of different Add, you know, technical things that we can do, but it's always about the human involved in the deal and satisfying their needs. And if you can do that, you, you can really get started in, in business, any business, you know, really. And what I'm telling you right now is, is all businesses. Real estate's just a product. It's just one type of business. Businesses, the fundamentals of business is universal.

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I like that, the fundamental aspect of that, of problem solving and becoming a problem solver as a service to others. And in particularly in this case, a service to the seller. Yeah, it's not, I don't think it comes natural for us to look at real estate investing from that perspective.

Correct.

But it totally and completely makes sense there. Well, you talked about master— or you talked about lease options. So talk to us about a master lease option, how you employ that. Well, and actually, I mean, first of all, tell us what a master lease option is. Yeah, sure.

It's a pretty simple concept. It's the idea of renting someone's property with the right to buy it someday in the future. So, you know, Allen, I'll use an example. Let's say you had a property and for whatever reason you were a burned-out landlord and you just, Wanted to get rid of this property, but for whatever reason, the asset is distressed, or maybe I can't go get a loan. You know, the occupancy's bad or deferred maintenance, whatever the case. And for some reason, the lenders are not liking your property. So I'm having trouble getting a loan on your property. All right, what I would do is come to you and say, okay, let's do a master lease option. Now, we only use this word master when we're talking about multiple units. If it's one house or a single property, it's just a lease option. It's the same thing. We just say master when we're talking about multiple units. That's all. So So I would say, okay, Allen, you and I are going to agree on a price today. So we'll just say $1 million for the conversation. So you and I have agreed on this price. Now what we're going to do is we're going to agree on a timeframe that I'm going to have to buy that property from you for this $1 million. So it's an option to purchase. And the idea is that I'm going to, with the lease portion, I'm going to rent your property. I'm going to come in and do whatever it was you couldn't do or didn't do. I'm going to get the property fixed up, get the operations running. So I'm going to implement the value-add strategy for this property, and then hopefully I get the price above our negotiated amount. So you and I agreed on $1 million. If I could just borrow your property for a little while, I could come in and do XYZ. Hey, then that property's going to be worth $2 million. That's a lease option. And so I want to kind of find deals where I could rent it, get access to the asset, Bring the value add, bring the value up, and then purchase the property with our pre— our, you know, lease option, our pre-agreed price. So that's a 10,000-foot view of what a master lease option is. There's a lot more details to it, but that's essentially it. It's a rent-to-purchase-in-the-future type model.

Okay. And how does that differ from a seller financing deal?

Okay. So seller financing is where the seller actually transfers the title To you. So there is a sale in seller financing. The deed and the title transfer to you, and now the seller is going to finance or become the bank on that deal. So they're going to give you the property, and now you're making payments to the seller, but there is a transfer of title. And if you don't pay the seller, then like any lender, they would come in and foreclose. In a master lease option, you're a renter, so there is no transfer of the title, not until you exercise the option to purchase. So you're, you're in A renter's position until you can get up and close. The real difference in why we would do one or the other is when a seller has a loan already in place. If the seller already has debt in place, they can't technically seller finance the deal to you because they already have a loan. Therefore, you would do a lease option. Now, there are things we call like subject to and wraps and things like that, which is very similar to a lease option, but technically seller financing. would be a transfer of title with a mortgage on that property.

Do sellers generally have a preference for one or the other, or is it generally dictated by the fact that there's a loan on the property?

Usually dictated by the fact that there's a loan or not. Usually most sellers don't own property free and clear. Most don't, you know, at least not larger assets. Smaller assets, houses, things like that, you can find that a little more often. But, you know, if you're talking larger commercial property, most people have mortgages on those assets. So you're a little bit It's a little more common doing lease options there than seller financing. But remember, seller financing doesn't have to be 100%. A seller— you could go to a bank and borrow, let's say, 80% from the bank, and then maybe have a seller carry back a second mortgage for some of that down payment. Very unlikely a lender is going to allow the seller to carry back 100% of the down payment and you have no skin in the game. That's unlikely. But a seller could carry back, you know, a portion of that down payment and therefore lessen the amount of money you need to bring to the deal.

Yeah. How do you create a property management business?

Very carefully. Yeah, I started off in property management by necessity. I've built a 16-employee management company now, but I started off by necessity because I had no job, I had no income, and so I had to live on every bit of cash flow that the properties produced, meaning I pretty much had to learn to manage those assets Myself. And then so eventually and over time, it became more of an actual real company where I started hiring people. And it just sort of grew organically over time as my portfolio grew and I started to buy larger and larger properties. I started bringing on more staff. And then I was able to hire people that knew a lot more about real estate than myself. And that's when our company went to the next level is when I actually started hiring some professional people that came on with real resumes to start working in the company. So that's That's how one gets started. I mean, there's no magic answer. You just, just got to get out and start doing it. It's easier if you have your own portfolio to manage, obviously, you know, as opposed to just going out and trying to get clients off the street. So I kind of had the homegrown approach, but yeah, that's, that's how one does it. It's no, no real magic answer to that one. Just, just do it.

Well, you started out essentially with a duplex, so you actually did start off with multifamily.

Technically.

But you went from smaller properties to larger properties. Talk to us about that transition.

Yeah, it was the duplexes the first, and I did houses and other duplexes. I kind of consider a duplex pretty much the same thing as 2 houses, you know, it's not really what I would put in the commercial world. So I did houses in small multi like that for about 3, 4 years, and then my first multifamily deal was a 9-unit, terrible neighborhood, you know, really, really rough property, rough area. 9-unit, and then I did 20 units, and then I did 27 units, and then 44, and then 100, 152, 200, and so forth. So it was a very linear progression. I did not just go from a duplex to 100 units the next day. It's like I tell everybody, it takes years of practice to become an overnight success, right? So I was behind the scenes for years doing this, and then it looked like I came out of nowhere and all of a sudden I'm doing big real estate. It was not true. I had been behind the scenes building that portfolio for many years. that people just didn't know, and I wasn't very public. But yeah, it was a very brick-by-brick, step-by-step process. And, um, you know, it's just a rinse-and-repeat model, and you just— you get out and you build it one brick at a time.

That reminds me of a Charlie Rose interview. He was interviewing an author. I don't remember who it was, but anyway, he— she had just had a breakthrough novel, and he had mentioned to her, he said, it seems like you were just an overnight success. And she just kind of laughed, and she said, it was a very long night.

It's a great way to put it. Yeah, that was a long night. Yeah, yeah, yeah, exactly.

You know, that's the way it is in most things. We look at a lot of people and we think, God, they were just so fortunate that just happened to them so immediately. But generally that isn't the case. There's a backstory to most everything, to most every overnight success. Yeah, you had mentioned that early in the show that you burnt those bridges, that, that was not— did not mean that there were not some ups and downs. So I'm going to ask you about that here in a minute. But before we get into that, you have a lot to offer. So tell our viewers and listeners how they can get in touch with you and what it is that you have to offer.

Yeah, we have—

I have the 2 books.

So if you're really looking to get into real estate or take your investing to the next level, either passively or actively, and a lot of listeners may be passive investors. Either way, there's something in there for you. Creative Cash and Real Estate Raw, those are both on Amazon. So, you get both of those on Amazon. realestateraw.com is my website. So, there's a free course there if you're looking to figure out if real estate is the right thing for you or you're looking to invest with me. You can check me out at realestateraw.com and I'd be happy to give everybody my email address. If you have any thoughts, comments, questions, or concerns, or you just want to get more information, reach out to me personally. And it's bill.ham@bpgmail.com, Broadwell Property Group, bpgmail.com. Yes, love to hear from you.

Well, wonderful. Well, let's talk about some of those ups and downs. So tell us about really one of your most difficult setbacks and how did you come through that time?

Yeah, probably one of my biggest setbacks is the day I lost $150,000 in one afternoon on earnest money. I was trying to to do a syndicated deal. And the long story was I couldn't raise the money. I got cocky. I thought I had a better network than I had when I realized really a stack of business cards does not mean you have relationships. It means you have a stack of business cards. And I had not developed those business cards into proper relationships. I'd been lazy and I hadn't followed up, done all the stuff that we know we're supposed to do. And so I've got this big deal and I've got $150,000 earnest money on And I'm failing in the raise. And I ultimately wound up losing the deal, did not raise all the capital, and had to walk away from the deposit. And that was a very bad afternoon. Yeah, that took me a while to recover from that one. I don't mind admitting that I spilled over that cry. I cried over that spilled real estate for a little while. Set me back, but I just picked myself up, put my big boy pants back on eventually, and I was able to recover all that cash from the next deal that I did. So, It was one of those things in the moment, it seemed catastrophic. It seemed like all the world was coming to an end. And now in retrospect, it's just a funny story I tell. Things are just— you'll be all right. Just don't stop. And my philosophy on real estate and business in general is, look, if you buy one, if you screw up one, buy 2. If you screw up 2, buy 10. You'll get it right eventually. Just don't stop. So when you make these mistakes, they may be larger than life in the given moment, and I understand the way that feels, I really do, but you'll be all right. Just have your grieving moments, set that aside, and then get back to work. You'll figure it out. You'll be all right. I've lost buildings. I've been in foreclosure. I've lost earnest money, and I've made millions on the other side. So it's not always about success. Success is about tolerance for failure.

$150,000, no matter how much money you have, that's nothing to sneeze at.

And at the time I had $151,000, so it was a bad day. But yeah, you know, it's business. And, and you're— as long as you don't quit, as long as you just keep going, you'll, you'll solve it, you'll figure it out, and you'll be okay in the end. It's when you lay down and die after that kind of mistake that you really own it. So if I had just quit Then I would've had that $150,000 mistake around my neck forever. And I don't know how long that would've taken me to recover from that, not utilizing more business, more real estate to solve the problem. So what got me in trouble actually ultimately got me out of the trouble. But yeah, that's been one of— that was probably one of my darker afternoons. Yeah, definitely.

Well, talk to us about that time, the darkness, the discouragement, the depression, all of that. I mean, that major loss like that.

Absolutely.

Yeah, it's something I'm very open about. You know, entrepreneurial depression is a very common thing, and we need to be very careful about that, you know, because no one is coming to save you. The cavalry is not coming. You're the tip of the spear. And if you break, there's nothing else coming to help you. And so I went into a deep state of depression. The one thing that I really learned from that incident was that I like to drink whiskey straight. So now I drink my whiskey without ice in it. That's what I took away from that. I had a family intervention. I was put on anti-anxiety medication. So it was a very serious event. And I had a lot of people that really cared about me and loved me circle around and say, hey, look, you're not doing okay. You know, you got to get away. You got to stop going to the bar. You got to stop that. You know, take this medication, calm down. And it was for the loved ones around me that really kind of helped me put my legs back up under me. But yeah, understand that you're not alone if you've failed, if you're in trouble, if you've been through that. It's actually very common. common in business. Most people aren't very open about it. They won't really talk about it, but it doesn't mean they haven't failed. They just aren't brave enough to actually use it. And now I love talking about it. I use it to set other people free. I use it to show that this is real, that you can make mistakes, but you can be okay at the same time. Don't look at someone that's successful now and think they were always successful. No, they probably had some major failures along the way. Whether they talk about it or not, well, that's one thing. But, uh, yeah, so that's kind of how I came through it, was, was, you know, good, good family, good people around me. But ultimately, I had to take responsibility for myself and decide not what I wanted to be, but who I wanted to be in life. And that was what, you know, kind of set me straight ultimately. But that was a very difficult road to go down, I'm not gonna lie.

So give us an idea of the time frame from that loss till when you actually got back on About a year. About a year. Well, that's—

Yeah, about a year.

That's really— Yeah, I was knocked off for about a year.

Yeah.

You know, and it was really ultimately, I should probably correct the comment that losing the $150,000 was a mistake. The bigger mistake was sitting on the sidelines for a year crying about it, you know, because what had happened was that was some of the best time to be out buying real estate. And I should have been just doubling down. I should have said, hey, I lost one, that's fine, but the world's a good time to buy real estate. It's a good place. And I should have just really written that off and kept moving forward. Now, with those kind of experiences, I can do that. I have that kind of mentality. But back then, it was, you know, life was over. I was laughingstock of the city and nobody's ever going to speak to me again. And, you know, I'm going to be blacklisted from the business. And none of these things were true, not at all. You know, it was all in my mind. And so, yeah, the real mistake was that year off. That was the real mistake, not losing the money. The money comes, the money goes. You don't get your time back. And I wish I had, had focused a little more on that one year. Um, but again, you know, uh, lessons learned, and I am who I am now because of that. But that's kind of my takeaway, is I wish I would have gotten back in the saddle a little bit quicker.

Laughingstock of the community. That speaks of—

Oh yeah.

Shame and humiliation.

Everybody's laughing at me. Everybody's making fun of me. Everybody's, you know, I'm the talk of the town. Nobody cared. I wasn't that important. Everybody's got better stuff to do than worry about me. You know, it was in my mind, I was coming up with all this grandiosity and it just wasn't true. You know, it just wasn't true.

Yeah. Well, thank you so much for sharing that.

Sure.

The realities of entrepreneurship. And quite frankly, I think I would be really hesitant to go into partnership with someone who hasn't Been through the dark times in life.

Completely agree. And that's one of the things that I tell people a lot of times is, you know, you can think you, you are who you are in this sort of thing, and you're going to act this way, and you're going to do these things. You don't know until you're tested. You can think all the things you want in the world, you don't know until it actually occurs. So it's very difficult to kind of trust someone who has never been tested, you know, because they don't know. And they may be great people, but you don't know You don't know how someone is until you squeeze them, you know, and you don't know how to— you don't know what kind of character is going to come out until you really put the pressure on them.

Absolutely. Well, Bill, it has been a pleasure. Thank you so much for sharing your experiences and your life.

Absolutely.

Thanks for having me on.

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