Hey everybody, welcome back to the show. I’m really excited to have my friend, Alexander Cruz, here today! Alexander and his partner, Craig, are rehabbing over two hundred houses a year and these are not ‘lipstick’ deals! How do they do it? That is what we are going to talk about today, rehabbing at scale!

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FlipNerd Show Transcript:

[00:00:00] Mike: Hey everybody. Welcome back to the show. Really excited to have my friend Sandra cruise here today. We’re going to be talking about these guys rehabbing over 200 houses a year, and we’re going to talk about rehabbing it.

Professional real estate investors know that it’s not really about the real estate. That real estate is just a vehicle of freedom. A group of over a hundred of a nations. Real estate investors from across the country meet several times a year at the investor fuel real estate mastermind to share ideas on how to strengthen each other’s businesses, but also to come together as friends and build more fulfilling lives for all of those around us on today’s show, we’re going to continue our conversations of fueling our businesses and fueling

our lives.

I’m glad you’re here.

Hey, Zander. [00:01:00] Welcome to the show. Thanks for having me. Yeah. Good to see you, buddy. Um, so I’m really excited to talk about this I’ve you guys are, are beasts in terms of rehabbing. I’ve primarily been more of a rehabber than a wholesaler, I’ll say over the years, but never to your scale. And there’s a lot of lessons to be learned here and excited to kind of share that with everybody today.

Yep. Sounds good. Yeah. Yeah. So, so maybe before we jump in, just tell us a little bit about your background and kind of how you found your way into real estate investing.

Alexander: Sure. Uh, the long story short is, uh, I, I randomly ended up in real estate. Uh, when I graduated from college in 2011, I got hired as a broker’s assistant.

Uh, so in an admin position, uh, which was really not a natural fit for me at all. Um, but I fought through it. I got grounded and I fell in love with the business. Two or three years later, that same broker introduced me to my now business partner, Craig. Um, and when we first met, we were not business partners by any means.

At that point, I think I was [00:02:00] 24 years old. Um, And, uh, so we started working together. Craig already had an existing, uh, flipping business in Pennsylvania, um, and let’s start creating the same business in Maryland. Uh, so that’s how our relationship started. Um, immediately I fell in love with the investment side of the business, far more than.

Anything I had seen before, um, needless to say I was hooked. So Craig and I were flipping houses together. Uh, at that time it was him, myself, and one project manager who would oversee rehabs. Um, and, uh, now today we’re a company of approximately 31 people. And as you mentioned, we’ll do 200 rehabs this year.

Uh, we cover the Baltimore Metro area. Um, I’m a partner of record. And, uh, that’s a long story short, so, uh, we’ve never, never left Baltimore. I left for college, came back, um, pretty grounded here at this point. Uh, actually just bought a house two weeks ago and we’re moving in this weekend into our forever home.

So,

Mike: uh, yeah, so long story [00:03:00] short. Awesome. Awesome. And you guys are doing around 200 4250 deals this year is your kind of your plan. Mostly rehabbing, which is, and I know, I know just, just because I know the Baltimore market, I mean, there’s some in it, it’s an older town, right? So there’s some massive rehabs.

These aren’t, these aren’t necessarily paint and carpet type rehabs. You guys are doing some big rehab.

Alexander: That’s correct. Yeah. So on our, um, we do two different kinds of rehabs. One is turnkey and then a one is your traditional fix and flip, specific to turnkey. These are brick row homes built anywhere between 1,919 60.

And they. Everything. Most of them are full gut. Um, our average rehab costs now is over 90,000 per house, and these are about 1200 square foot townhomes. Um, and sometimes we get into heavy duty. We’ll call them shells where basically you strip them down from the walls and rebuild them back and we’ll spend 120, 130,000 right.

Easily. Yeah. And then a fix and flip. We’ve done a lot over the years have done as expensive as [00:04:00] 1,000,006 house, which here is mega mansion. Uh, we spent about $440,000 rehabbing that one. Um, don’t really like to do those. Uh, right now our average, uh, rehab on a fix and flip, um, on a full rehab is a little bit over a hundred thousand on a lighter rehab.

Uh, which we call maybe more of a whole tail. Uh, we’re spending 30 to 40 right now. Uh, and that’s actually proving to be very profitable. So yeah, definitely talk more about that.

Mike: Yeah. Yeah. And I know that that’s, uh, you know, doing some math there, you’re probably 25, 30 million a year just in rehab costs.

And, uh, that’s a massive, that’s a massive operation to pull that off. So let me ask you that kind of a question. Cause there’s, you know, I’ve done tons of shows. There’s obviously a lot of investors out there. There’s a lot of. Especially newer investors are when they’re getting started. They focus more on wholesaling and, um, you know, talk a little bit about why you guys rehab so much because you could wholesale some of those as well.

Uh, obviously I know that a lot of your businesses is [00:05:00] turning, providing turnkey properties to investors. So, you know, a lot of those folks are wholesaling to them is not turnkey. They have to go do all the work. Right. But tell us a little bit about the kind of case where being in such a heavy rehab or versus other experts.

Alexander: Yeah. So, I mean, at the end of the day, the biggest reason that we would keep a house is ultimately we’re going to generate more profits as a business in that way. Um, and but that comes with, you know, the requirement of being able to actually rehab it. So for a new investor, I do think wholesaling is a nice way to get started.

Um, I think it just depends what their ultimate goals are. If their goal is to grow into a bigger business that, uh, is going to want. Need bigger profits, um, you know, being able to rehab and then deliver and maximize on that profit is the way to go. Um, as a case study, we do buy a lot of properties from other wholesalers and we end up paying assignment fees, you know, as small as 1000 as high as [00:06:00] 30,000 or somewhere in between.

Um, and ultimately if we were that original buyer, that’s added profit to us. So, uh I’m okay for another investor makes $20,000 selling that. And then we turn around, rehab it through the value add. And when we’re making an average of 25 to $30,000 per property, if we had bought that same property from the seller, that profit number is now approaching $50,000.

Right. So pretty big motivation to have a construction team in place and be able to rehab those, especially the larger scale that we go. Yeah,

Mike: for sure. Yeah. I think a lot of newer investors, you know, they’re hanging up is, uh, well, money is one, right? Like access to money, which really isn’t that hard. So find the, certainly these days after you have a proven business model, but the operation is the big piece.

I mean, you know, pulling that off is no is no easy feat. So let’s talk about like, what, what does your team structure look like to be able to pull off 200 plus rehabs a year?

Alexander: Yeah. And, and again, you don’t have, you’re not trying to get the 200 [00:07:00] immediately took us

Mike: here. Nobody’s going to start

Alexander: this way.

Right. So, so when we started, we had, we had one person, we had one project. Is what we call them. And our project manager, their responsibility is to take a house from the day we buy. To the completion of the rehab. And then when we’re selling it, of course, we’re going to handle some home inspection repairs.

Um, so in that they’re going to, they’re going to develop and set a rehab budget, which again, especially the smaller you are intimately involved in every budget. Um, at our current scale, uh, I’m not even looking at a budget unless there’s a substantial issue. Um, We now have the structure in place with other people that’ll take care of that, but when you’re just starting out, it’s really just one guy that hopefully has renovation experience already.

Um, some of our best project managers, one, uh, worked for Lowe’s at many years, um, and was in there. I forget what he was like in a sales, you know, kind of contractor side of that business. Um, another guy, uh, ran a kitchen business [00:08:00] for, for many years. Uh, Incredibly familiar with the ins and outs. Another guy came from an insurance restoration company.

Um, so are you looking for people? They don’t have to necessarily have rehab homes, but they’re in this kind of general field. They know what they’re doing, talking about. Um, from there, you know, as you grow it out, you then of course the more and more systems in place. Um, but I will argue it’s really not that hard to get started.

You just need one person and one person you could rehab depending how much you can afford to spend. Um, you could end up with. 20 to 30 properties in a year. Um, our goal now with our established systems in place is that one project manager can deliver 40 properties. Okay. If you could do the math on that, if you have five project managers should be able to hit 200.

Now, other people involved outside of those five, they hit that number, but one should hit you a pretty good number. And your

Mike: project managers, is that your primary? Uh, I guess employee or, or, and then they’re, they’re [00:09:00] subbing it out or they’re finding a general contractor or with a project manager. Are you using a general contractor or do they go into a bit, basically a bunch of subs.

Alexander: They’re they’re going to handle all subcontractors. So, uh, we do not have, uh, like my project manager would not go hire a contracting company who’s then going to hire HVAC, electrician, plumber, et cetera. Way we structure. It is we have a once up that handles your general stuff, your framing, your drywall, your tray, your tile.

We have, uh, individual subs for the trades. So we have an HVAC guy, a couple of them. We have a bunch of electricians. We have a bunch of plumbers, but there’s one on each job. Um, we have, we use one single kitchen supplier. Uh, we have really bad luck with having contractors do kitchen. So. One rock, solid kitchen company.

They do all of our kitchens. Um, and then same for our roofing. Uh, our roofer has been with us for eight years. He has all of our roofing gutters, windows, and exterior trim. Um, so again, a lot of that stuff as you get into a [00:10:00] local market, uh, referrals is the best way to find, you know, those subcontractors.

I’ve heard that the old trick of, you know, pulling up in a truck at home Depot, I don’t think that’s the best way. Um, but as soon as you find one good one, you just gotta just go word of mouth from there and really tap into the network. Yeah.

Mike: I’ve always told people that you never want to be the Guinea pig with your own wallet.

So kind of find those, you know, somebody else that’s used them when they had a good experience and then, you know, let somebody else be the test, the test case for that.

Alexander: Yeah. And ask them for references and pictures of past work and, um, anybody that’s halfway decent, they’ll they’ll have those,

Mike: right? Yeah.

They’re proud of it. So they’ve taken pictures of it and stuff. Yeah. Yep. So how do you manage and then, and then do you have somebody maybe it’s you that manages the project managers because you’ve got, I think you said you guys like, right. As of right now you have 50 rehabs going on. Uh, which is, which is massive.

Right? So who’s managing the project managers like structure.

[00:11:00] Alexander: Yeah. So for a long time, uh, we didn’t have, well again, when we were smaller, it was pretty easy when there’s one or two, even three project managers, um, And at that time, the guys that were working, we were doing flips and rentals. So the flip project managers would report directly to me because I’m over top of acquisitions and sales and flips can get a little bit more custom.

You know, you got to make sure that the layouts, right. Things like that. Um, at the same time we were building our own rental portfolio. We had project managers doing rental rehabs, which are much more straightforward than less custom. They reported to our rental guy at that time now, as we’ve evolved. And now we have, uh, five project managers out in the field.

They report directly to Jeff. Who’s our director of construction. So we have a director over the five project managers. Uh, they also share an admin person who helps keep everything organized. And then above Jeff is our COO Andrew. Um, who’s in charge of all [00:12:00] operations. So nobody answers directly to me anymore.

Um, I do frequently have interactions with the team, uh, but the, the structure is. Project manager to director construction to COO. Um, and then we do also have a separate accounting team that is going to keep track of invoices and billing that comes through. Um, but at the end, our project managers are responsible for their own budgets.

That’s how, part of how they get bonused, uh, with the factor of their bonus. So they’re going to be very aware of it. It should be very aware of it, making sure that things are being expended. Yeah.

Mike: Yeah, that’s awesome. That’s awesome. So you guys, as you’ve said, several times, you didn’t start there.

Obviously you started with one, one house and one guy, right. But let’s talk about maybe just some high-level pitfalls and lessons learned because you don’t get there. I know. And I know how this works without a bunch of arrow wounds in your back as I like to say. So maybe you can share a few, like key lessons learned that other people could, could benefit from just by your [00:13:00] experience of, of it versus them necessarily having to go through it.

Them.

Alexander: Yeah. I mean, we could write a book on this. I mean, some of the really big ones that are real big. Oh man. Especially when you start telling stories, but, um, one of the biggest, most basic things. Is you gotta pretend to protect yourself. So you’re never going to pay ahead. So what does that mean? That means if a contractor says to you, you know, the job is $10,000 in labor and they want $5,000 up front or anything in front of all the answer is no.

So you need to have a set draw scale. And they can get money really quickly off the top of my head. Um, on a $10,000 contracts, we might have four or five draws. Um, the quickest and easiest one that they can get to within a week is demo and framing. Right? That’s easy now, again, that’s not $5,000 worth of work.

That might be 2000 or $2,500, but they’re not going to get paid again on their next draw until they’re [00:14:00] through, if they agree on what it is, but let’s say drywall. And trimmer done. Right? They can get paid. Another draw. The bottom line is if let’s say it’s a halfway point of the job, we have to fire the contractor and hire another one.

We better have enough money left over in the budget to pay the new contractor. Yeah, we used to, in the old days we had a lot of issues with this, um, because it can be hard to tell people, no, you’re not getting paid. Um, but when you have a written contract and it’s very clear, what’s required in each store.

There should be no questions. There should be no stories. Um, because again, you gotta look out for yourself. Yeah. You’re going to be fair, but you gotta protect yourself.

Mike: Yeah. One of the things that I’ve found and you guys benefit from this now is you’re very important to a lot of people, right? And so the tough part is if you’re a, if you’re starting in rehabbing and you’re doing just a couple of deals here and there, they clearly have all sorts of other jobs.

They’re out looking for new work all the time. Once you become an important to somebody and they know they’re going to get paid like clockwork, there’s an element of trust. And an element of respect. Like I respect your process [00:15:00] and I’m not gonna let you down cause I want to get the next job. Right.

Alexander: Yeah.

And that goes for you too. So as, as much as you’re going to hold that contractors to the standards, you darn well better to. So we pay weekly. If you have your invoice in, by, I think it’s Tuesday, I think at the time. But if your invoice is in by Tuesday, you’re chucking, your check gets cut on Friday. Um, so we’re going to uphold our end of the bargain.

We’re going to pay right away. You know, we’re never going to play games or switch and bait anything. Uh, we’re going to be fair guys know when they work with us are getting paid. Um, and not only that we have more work, so that’s a big value add just like anything else you need to be honest and respectful to people.

Um, if you do that, the contractors are gonna respect you back. Yeah, for sure.

Mike: For sure. And you know, most, most contractors, a lot of certainly, you know, not, not necessarily younger, but newer, I guess, in the business or whatever, they’re spending half their time looking for the next job. So if they can eliminate.

Yeah. Having to look for work, they can make more money because they’re just staying there, staying busier. Right?

Alexander: Yeah. [00:16:00] So another thing I would say, people need to, um, be careful and be aware of, especially as you’re getting started is, um, I’ll say one would be don’t bite off what they’re saying. Don’t bite off more than you can chew.

Yeah. Um, I have a horror story. I’ll share. Some of the details of it. Um, I bought a house from a guy, uh, it appeared to be a somewhat solid, uh, stone rancher. Um, and then I walked through the house and discovered that coming from the roof was about a hole is about six feet in diameter. It had been open for probably 15 years and every time it rained, it literally then dissolved through to the basement.

So whether or not it could have been saved, we decided. Uh, creative with it. And we said, okay, well, let’s tear the rancher down to the foundation and then we’ll build it back up as a story colonial. Um, that was it. We tore it down. [00:17:00] And, uh, two years later, we finally sold it as an empty lot and we lost our bots on it.

So, uh, stick with, I mean, we, I could tell you so many things. We would have to go to the petition for a variance. The variance got denied. We had attorneys, engineers, architects. I mean, everybody got paid on this thing except for us. And we couldn’t figure out how to rebuild a house and the foundation went bad cause it was left exposed for too long.

I mean, it was like. Um, myriad of mistakes and disaster. So, um, if you’re rehab stick, the rehabbing, don’t try to build something. If you’re a construction guy, you better have good people in place to figure out how to rehab. Um, so yeah, I mean, unless you are at a scale that you can do numerous things, um, stick with one or two, if you’re wholesaling now, when you want to read.

That’s fine to start a rehab, but don’t do a rehab that you’re going to build an addition. Like it’s really complicated. So stick with the rehab stuff and grow to the other side.

Mike: And, you know, that’s, that’s a good timing for a tip like that. Cause what I found is a [00:18:00] lot of people when the market is as hot as it is, they, they justify sometimes overpaying for a deal.

Cause they’re going to create some value by doing an add on or something else. And so. It’s just, I guess you’re kind of less than there is. Don’t throw good money at bad at a bad deal.

Alexander: Yeah. That’s also a really good way of saying

Mike: it. Yeah. Don’t double, don’t double down this isn’t the type of business. I mean, you know, just move on to the, you gotta, you gotta like live to fight another day or this business.

Right. So down to don’t go all in on. Right.

Alexander: And don’t make it don’t over-complicate it. We, as people that are business-minded entrepreneurs, we can get really creative and have these cool ideas. But you don’t always have to do that. I mean, like, yes, it might be really cool to blow that wall out and open up the back of the house and then you’re gonna have this massive kitchen it’s going to be awesome.

But you might have a setback issue. You might have it create a structural issue. It could take eight months to get the permits. Like if you could just rehab the house in a month or [00:19:00] two and sell it 30 days later and make 40 bucks. Why do all the extra work to make an extra 10 grand or potentially the same money.

So sometimes you’ve got to go the simpler route, especially when the market’s hot and there’s a shortage of houses. Now it’s a great time to be selling a house, not doing something great.

Mike: Right, right, right. So in terms of, um, kind of where the market’s going, I want to ask you to get out your crystal ball.

Cause I don’t think any of us have any idea where, where it’s going. But how do you, when you’re heavy on the rehab side, you, you probably have more risk a market downturn or shift. Right? And so sometimes people will start to do a move to just faster cycle time, excess strategies, like bull tailing or wholesaling or assigning.

Right. And so what are some of your thoughts on how you guys think about this? You’re very happy. Uh, in the rehab space and you know, you guys are smart guys. Yeah, I know that. So you’re not, it’s not like you’re not aware that the market could ship the market. Doesn’t typically ship that fast, but what are your thoughts [00:20:00] on, you know, how to kind of prepare for a ship?

Alexander: Yeah. I mean, I think, uh, speed is really important. So even if we’re not wholesaling and if we’re not wholesaling, um, our, our goal is to be in and out of every house within about 11 weeks at the most. So in that timeframe, that should be a short enough timeframe. Like you said, the market typically doesn’t change that fast.

Um, but in and speed it’s about turnkeys. Uh, these are relatively lower price points. So a 180 house, you know, If it goes to one 70 value, that’s a painful and not ideal, but it’s not gonna break the bank. Um, you know, if you’re, if you’re rehabbing substantially more expensive houses and you’re projecting a 1.2 value and you end up at a million, yeah.

That’s going to hurt a lot more to see the least. Yeah. So that’s speed. Speed is everything. And you just got to pay attention and feel and look at what the market is doing. Um, I have the blessing that [00:21:00] my partner. Investing through the 2008 crash. He started no four. He never stopped in oh eight. And his point was, we just rode the wave.

When, when things started going down, we kept buying homes. But instead of buying them here, we were buying them that much lower. Um, the market never stopped. We just had the price on them. The house was right, right. You know, people definitely got stuck upside down, but fortunately they didn’t have that problem because they were quick.

Um, again, if you’re holding a house for a year, It may or may not work out for you, but if it’s a three month span in and out, you’re probably pretty good.

Mike: Yeah. Yep. Good. Yeah. That wisdom, that wisdom of, uh, being through market cycles, uh, helps. And obviously the wisdom of being around Alaska, but you guys are invested, you guys are members of investor fuel and just the collaboration of everybody’s sharing ideas and our group like ours is it helps everyone, right.

That people can learn from you guys and you guys learn from others. And so, so you guys have been an investor fuel for a while now. I think. [00:22:00] Technically joined right before COVID hit. Maybe would you mind kind of sharing your experience of just being members of the group? Maybe just a quick testimonial.

Alexander: Yeah. And I’ll also add that in the beginning. I was actually not one out of the three partners of the business. I really wasn’t in the meetings in the beginning. So my investor fuel ramp up has come a little bit later. Um, so I, I have grown to love it more and more of the deeper I’ve gotten it. Um, and, uh, not to get too personal, but, uh, as I continue to grow in the business, um, and increase my equity position to me, investor fuel was actually a key part of my strategy moving forward for the next five or 10 years, because I need to stay, I in the business need to stay in sync with what’s happening, uh, and from little, little things, the big thing.

So big things like, you know, what’s happening in the market and little things like that. This is not really working anymore for this type of lead source. What’s working for you guys. Um, and I think it’s a great way [00:23:00] to stay up to date on, you know, the, the cutting edge side of the business. Do you like the guys in the group or, I mean, they’re just crushing it.

So who better to hang out with and talk to, and learn from and get information from than the people that are already the best. Yeah, no,

it’s

Mike: definitely a secret weapon.

Alexander: Yeah. It’s been really rewarding. Um, you know, there’s probably some tangible monetary reward to it. Um, but it also creates another level of accountability for us too, which we really, I really welcome that.

And I think it’s.

Mike: Yup. Yup. Awesome. My friend, I appreciate that. Um, so if folks wanted to reach out to you guys or connect with you, you guys obviously do a lot of, uh, deals in and around the Baltimore area. So obviously if anybody has deals in that area, they can reach out to you. But how would folks connect with you if they want to.

Alexander: Yeah, absolutely. So our website is one easy way. It’s CR of maryland.com. Don’t forget to have, or just Google CR, Maryland. We should be one of the first results. Hopefully. Uh, you can also email me directly [00:24:00] anytime it’s [email protected] It’s another easy. Um, I’m also on Facebook, although I’m really bad at Facebook messenger.

So probably don’t send me a message there. Um, but uh, our company has an Instagram it’s CR, Maryland homes. Um, so you can find us there too, but any of the above ways

Mike: or our phones. Cool. Well, that’s some of the links down in the show notes. So, Hey Zander, thanks for spending some time with us today and congrats on your success.

I know it’s come at a, at a toll of a lot of effort, a lot of work and failing forward and all that stuff, which is just how this works. Appreciate your sharing. Your knowledge was today. Yeah. Thank you, Mike. Awesome. I appreciate everything. And we’ll see you, uh, see you here in a couple of weeks.

Alexander: Sounds

Mike: good.

Yeah. Everybody. Hey, thanks for joining us today. These guys are based on the rehabbing side. If you are rehabbing or you’re thinking about getting to rehabbing or you’re already a massive player, hopefully you got some value from this today. If you haven’t yet checked out investor appeal, you can go to investor pool.com to learn more about our group.

We’re [00:25:00] actually meeting here very shortly, but we’re really a community 365 days a year. So urge you to check. Appreciate you guys see you on the next show.

Alexander: Are you an active

Mike: real estate investor? If so, and you want to latch onto the power of surrounding yourself with over a hundred of the nation’s leading real estate. All committed to building stronger businesses and living richer fuller lives. You should jump on a call with us to learn more about investor fuel.

Simply visit investor fuel.com to get

Alexander: started. [00:26:00] .

 

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