Ep 178 - Our Journey Episode 8 - Renovations

Hey, everybody. Flip and Danny here, founders of the Freedom Real Estate Group family of companies.

Congratulations.

There we go. I got it. Welcome to another episode of our podcast.

Which is called Freedom through Passive Income.

That's right. And this episode, this is our journey. And this is. Gosh. This is episode number 8 out of 12 is a 12 part series.

Yes.

And this one is simply entitled Our Journey Renovations. You didn't have. It's one whole thing. Come on.

I'm sorry, I'm sorry.

Come on. It's our journey Renovations. And so again, this is our series where we started way back on the first episode of this 12 part series, talking about how we went from cruise ships to. To art auctions, to land, which is when you went into the insurance and then mortgage industry. And then I got off out of the art business and we're like, what are we going to do? And somebody's like, you should do real estate. So we say, hey, let's do real estate. And so what do we do when you, when you want to do real estate? Well, you get your realtor's license, but good idea for 2008. Anyway, so then we talked about being realtors, and then we talked about going into real estate investing. And then we talked about all the different programs we did. Mortgage assignments, short sales, sub 2 reps, seller financing, wholesaling, and then turnkey. Now we're in the beautiful state of Ohio, the hot spot vacation that no one ever goes to for vacation. It's amazing. Except for people from Ohio. And so we're here in Ohio and we're now doing turnkey properties, which we talked about last episode. And now we come into a situation of we need to start a renovation company.

Yes.

And we knew that we needed to in a bad way. And having two bulldogs at home, we're like, well, what should we call it? I don't know. How about Bulldog Renovation, sir? There you have it. Bulldog Renovations was born.

Yes. So this is a wild and crazy ride building a renovation company. I will tell you that these next few, this episode and tomorrow's episode are going to be the two companies that were among the hardest or more challenging to build. And we'll explain why as we go. So renovations we were debating between at first, we started off with just building a team. Right. So the reason that we decided to build the renovation company was because we were hiring contractors to do the rehabs. And we just didn't have somebody out there checking them. Sometimes they didn't show up, Sometimes they said they showed up. Sometimes they would send us A picture of a finished product. It wasn't finished. The work was just shoddy. So we needed somebody that was gonna actually go out there and babysit them, make sure that they're actually doing what they said they were going to do. Unfortunately, in the contractor world, there's just not a lot of good souls out there. You have to find and pick through the big, huge haystack to find the good souls to. So we went through a lot of bad souls in the very, very beginning.

For being so polite.

And so we created the renovation company in order to put in place a team that would be going out there and creating the scope, walking the properties, checking to make sure the work is being done, approving the pay requests, all that type of stuff. So that's why we did it. And we went through quite a few project managers going through that, because not that they weren't good souls, they just weren't as detailed or. Or as on top of people as.

We would be needed them to be.

Yeah. If we were in the position. If we were in the position, we're pretty. You know, this is what you need to do, and if you don't do it, you don't get paid. That's just. It's very black and white for us. And so they weren't as detailed and as strict maybe as we would have been. So as we built that up, we did. Finally, right now we have. We brought him on. His name's Steve Maloney. If you work with us at any point in time, you're going to meet Steve. He came in as a project manager, ended up as a director of renovations, and now is like the vice president of our acquisitions.

I think there was director of innovations in there, too, somewhere. Yeah. I don't know where that one came from, but that was. I was like, oh, that's an interesting title.

Yeah.

But now he's vice president of acquisitions.

And acquisitions and renovations. Yeah. So he's even now leading another department within our company. And this is actually a recent promotion for him. And we're super excited because that's the type of people that we want in our company. Right. Is that people that come in and they treat this company like their own. And he has been a game changer for us. So that's kind of the story of why we created the renovation all the way up to where we are today. Now, some of the things that we tried out during this was, do we build the team and continue to have them hire subcontractors? Right. And so that was one strategy. Another strategy in that box was, okay, do we have the team hiring subcontractors, but we pay for the materials instead of they pay for the materials.

Oh, I remember that nightmare.

And then the other variation was, do we test out bringing people in house? Meaning the contractors now work for us as employees. So we've got them, we can control where they go, what they do, and maybe that starts saving us money in terms of having to run places. And so all of those things were long chapters of experiments. We started with hiring the team to just manage subcontractors who bid labor and materials. They handled everything. Then we went to the phase two of let's see about us, because we can buy in bulk, right? And we have this huge 15,000 square foot office. We purposely made sure there was a warehouse so that we could stock all the materials and we would save money and then we would just pay them for labor. The mistake there was how much work did it take for us to be buying all those materials and stocking them in inventory and then getting them to the site? And was like, oh, did not think about that.

Yeah, I didn't think that one through.

So we went back to the subcontractors paying for their own materials and just bidding it out. And when I say bidding it out, it's really Steve walking the property doing the scope. He knows how much it is. He goes, hey, Mike, you want this property? This is how much I got budgeted for. Here's the scope of work. Mike goes, yep, okay, great. And then we move on. So that's been also a progress to get there because it was contractors would go there and bid. The project manager would go there and create the scope of work. And it was just a cluster in the middle of all this. We created property standards to say, hey, these are the standards. You can't be doing this. This is the type of light we want. Don't buy the one on sale. That's crap. And we have to replace in three months. So we went through all of that and the in house experience of in house contractors, it literally was babysitting to the 10th degree.

Oh my goodness.

Like, it wasted so much of Steve's time to have to go there and teach them stuff and watch them and make sure they're actually doing it. And it was. Oh, it was just. I never thought it would be have been that big of a nightmare. And you know, when I started talking to people about it, they had the same story. And I just, I wish I would have talked to a lot more people before we did it because Everybody had the same story. Everybody has. Not everybody, but most. Most people have gone back to using subs. So we are back to how we started. But that's kind of what you do in business, is you explore all these different ways of doing things because you're trying to improve the quality of the product, the quality of the people that work for you, the cost of everything that has to happen so that you can either lower it for the end buyer or you can buy more properties because the renovations are less. So when you have those small margins, you can make it work. And therefore our inventory grows and we can serve more people. There's all these things that you explore. And Renovations was one of those ones that we explored. A million of them.

Yes.

And it was crazy because you don't.

Know until you try.

Yes. But I think we have a really great system now. And if we really, really do maybe five times what we're doing now, I think everything will change in terms of whether we do a warehouse in bulk. And I think some of that might change because then it becomes so much more cost effective across that much more product that the numbers make sense. But the numbers didn't make sense at the volume we were at when we tested it. So that's kind of the story of renovations for us.

And I think the game changer was when we decided to do the property standards.

Yes.

Because like we talked about in the last episode, what we're mainly focused on, our rice bowl, was turnkey properties. And we wanted all the turnkey properties to be the exact same thing. So if one person bought one property, when they go to buy another one, they know exactly what it's going to be on the inside.

That's right.

And so it was. We called it our Big Mac approach, You know, because if you have a Big Mac over here and a Big Mac over here, guess what? Still a Big Mac. Yes, guess. Now I want a Big Mac. But so that helped out, too, because not only did that help us out, it helped out the buyers, you know, our investors out, but it also helps out a project manager because he says, hey, you need to get lights and flooring for this house over here. He doesn't have to say, hey, you need to go over there and get the light model number 40, you know, whatever. And plus the crew now, they don't have any questions about it. Oh, I gotta go get lights and flooring. I know exactly what to get. Because they only use one kind and it's not the low end that's always on sale.

Exactly. Which is what they were doing, they'd give us this bid, and they'd go and get all this stuff on sale. That was crap material.

Yeah. Pro choice.

Yeah, let's go. Lesson learned.

Sorry. Lowe's. And so the pros, we've got more control now that we have the project manager now that we have all this stuff, so we definitely have more control.

Absolutely. And now one of the pros is if we screw it, screwed it up, we fix it. Right. Whereas before, we were so dependent on people that were true vendors, had nothing to do with us, that we were relying on them to fix it. And then if they didn't, well, we just had to pay for another contract to do what the other contractor was supposed to do.

Oh, and they hate fixing other people's stuff.

Yes. I won't say that. The bad word I was going to say, but so now that. Yeah, we have these contractors that are just loyal to us, so they don't want to lose the volume of work that we're giving to them. And therefore they're like, yeah, absolutely. Go back there. We'll fix it. We're on it.

And then. And I already said this. Property standards. That changed the game. Yes, it really did.

That was a big one. Contractor pricing. So that has helped us a lot because of the volume. So we tell the contractors. Contractors usually have to go out and find their work. Right. They have to go talk to investors, bid the job, and it's a lot of work for them. When they work with us, they just work with us because we keep them busy the whole time. So because of that, their efforts of having to go out and the cost of that time to go out and get the work are down, which means we get the benefit of lower cost for them.

So now, is this one a con or is this a pro?

Oh, actually, no. This is my. For tomorrow's episode.

Yeah, I was gonna say that.

Doesn't seem like I was looking for that. The other day I was saying, danny, you wrote this somewhere. Where did you write it? And I went, we're gonna find it when we're recording the episode.

That was neither a pro or a.

No, that's for tomorrow. You won't hear it till tomorrow.

There we go. And so the cons now, we had to, you know, building and hiring the right team that we went through a lot of members and contractors and. And I want to say this, too.

Yeah.

You know, I was a musician. I was a musician for many, many years.

Yeah.

Musicians are the craziest characters. You know, some of the most Just out there, people. Right. And I love them to death. These contractors put those musicians to shame. I'm like, seriously?

Yeah.

Ser. I can't even go into some of the stuff that we've seen out there.

Crazy.

The guy stealing the water heater is that guy.

Whoo.

He's the top of my list anyway.

All right. And then the other con was testing in house material purchases. That whole story that I told, it was. It was a lesson learned. So I hate saying a con, but it did take a lot of time to test that theory, only to find out that what we started with was the right way to go.

I think that's both a con and a pro.

And a pro.

Because we got to test it.

That's right. That's absolutely right.

All right.

All right. We're going to end with our five. You ready for it?

Oh, yeah.

Okay.

Risk tolerance with a renovations company. Let me think. We're going to say yes.

Yeah. One. Probably one of the most highest risks you can have. Time, availability.

You're going to need it.

Yep. You have to babysit. These guys. Do not trust. If you're going to hire somebody and you don't know them, go. Just visit the site. And visit the site every day. Quite frankly, Knowledge.

I know more things about building code now than I did five years ago. Let's just put it that way. So, yes, you're going to need it.

Because contractors are going to tell you how it should be done, and they're not. Right.

Yeah. I love the house we walked into, and the outlets were all, like, 4ft up from the floor.

I'm like, excuse me. Even I know that one inner circle.

Well, yeah. Yeah, you're going to need an inner circle. And it's a different inner circle than the last inner circles that we've needed, because now we need the inner circle of the knuckleheads repair the house. You know, I don't know.

I don't know how to avoid the bad guys.

Yeah. Yeah. I'll call them knuckleheads. That's the easiest way. Nicest way to go. Access to capital with the renovations company. You're gonna need it, because there's gonna be some broken eggs.

Yes, there is some broken. And contractors are more loyal to you. The more you are more loyal to them. So we pay our guys every single Friday. There is no question mark, not one missed. Because a lot of investors will not pay them. And then. And it's okay not to pay them if they didn't do the work, but if they did the work, Pay them. Otherwise, you' get them back.

So actually, I want to say, not one missed because of us. Yes, there was a bank issue one week, and I'll never forget it because I was just like, no, we have to pay them.

I know. Yeah, we're really hardcore. Okay, so tomorrow is our next episode of this journey. And again, it's the other company that was one of the most challenging for us to build. And so tomorrow, you're going to learn how we built our property management.

This one's going to be colorful. I might have to get the bead for tomorrow's episode. Make sure you're heading on over to our website, freedomcapitalinvestments.com to join our investor club. But make sure, you know, while you're listening to all these, make sure you're hitting the reviews and whatnot and hitting the like button. Oh, hit the like button.

If you like our journey. I keep on saying, there we go. This is kind of a fun little series that we didn't even plan on doing.

We just our little walk down memory lane.

Yeah, a little face Facebook post kind of prompted this whole thing.

And tonight I'm gonna have nightmares of the renovation and property management. But make sure you hit the love button and the subscribe button and the. The bells and the whistles.

Yeah, give us reviews. We're bringing some value.

That's right. But we like to end all of our episodes with invest smart, Live happy. Bye, everybody. Hey, everybody. Flip and Danny here. Founders of the Freedom Real Estate Group. Founder. Founders. Founders. Founders did it again. Founders of the Freedom Real Estate Group. Founders.

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Dork. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions and information on this show are not guaranteed. All investment strategies have the potential for profit or loss. Sam.