How to Buy Foreclosures and Rent Them Back to the Homeowner | Bob Kokott

Bob Kokott (00:00)

I’m sitting at my desk surrounded by pictures of my wife on and me on vacation. I have pictures of my grandkids. I have pictures of my kids. Those are my whys. that’s why I do it. we went to a seminar and 5,000 people were there

And this investor gets up and he starts off his presentation by I hate real estate. And we’re like, What? This is a real estate. What do mean hate real estate? You can’t hate real estate. And he goes, But I love what it can do for me. And that to me, even though I’ve been doing this for 52 years, there are days I don’t love the real estate. So again, determine your why.

Dylan Silver (01:09)

Hey folks, welcome back to the show. Today we’re joined by Bob Kokott, investor and mentor in Milwaukee, Wisconsin, with decades of experience and currently in the process of writing a one-of-a-kind interactive book. Bob, thanks for joining us here today.

Bob Kokott (01:25)

pleasure to be here. Thank you.

Dylan Silver (01:26)

What types of deals are coming across your desk these days?

Bob Kokott (01:30)

Well, about twenty-five years ago, I started to specialize in foreclosures. Well, of course, the economy got better. So the foreclosures started to not be as many anymore. However, due to our most current economy, things are starting to suffer. People are falling behind in their bills. And so I’m refocusing on again purchasing some more foreclosures. And again, I’m seeing more and more of them.

out there that again people are falling behind at the payments so for me i kind of specialize i’ll look at other deals and what i’ve done again i’ve been doing this for 52 years i have lenders that will call me tell me that a homeowner is in trouble ask me if i would investigate it see if i can work a deal out with someone of course the banks don’t want to get the foreclosure home back either so they look upon me as kind of

the mediator between the two. And I just found that foreclosures for me seem to be the most profitable homes. So again, I’m starting to refocus more on the foreclosures.

Dylan Silver (02:29)

When investors are looking to find these foreclosure deals, when is the right time for them to be reaching out to that a distressed seller? Is it when they’ve got an auction date set? Is it far before that? When’s the right time?

Bob Kokott (02:44)

Well, they do put a notice out a few months. If someone missed a payment in about three months, the bank will send out a notice asking them to within 40 days or 20 days let that they’re asking what they’re gonna do about it, they’re gonna take advantage of it. But I found that over all these years, the people take the most action when it’s a week or two away from the auction.

They finally realize that this home is gonna go for sale. Up till that time, most people just think, it’s not gonna happen to me, it’s not gonna happen to me. and again, that’s what I have found. The closer it gets to that share’s auction, they’re more anticipating a sale. And that seems to be the prime time.

Dylan Silver (03:22)

When you’re that close to the auction, there’s a lot that is taking place and that needs to take place, a lot of moving pieces, and a week away from the auction, that’s crunch time, right? What do those conversations look like when you’re that close?

Bob Kokott (03:36)

Well, in Wisconsin, we’ve got some extra benefits with the foreclosure market. Even if a sheriff sale happens, that doesn’t mean the person loses the home. In Wisconsin, once a sheriff sale happens, it will take another three to four weeks for a judge took over all the paperwork. And he will conclude then that the sale can happen and move forward.

So what I find is if I have a homeowner that’s a week or two away from the auction, even though that’s a quick time frame, I usually have about six weeks in order for me to get that house closed. So there is a little bit of wiggle room in there. Sometimes homeowners are given an extra period of time from the judges to sell their home or to update their finances. But again, it just seems like the closer the sale, the more antsy

that homeowner really wants to get.

Dylan Silver (04:27)

Now, when they’re going through those final weeks, right, and then even after the home has been sold potentially at the auction, and now they’re sorting through maybe a last-ditch effort to recover their home, I can imagine that these are different circumstances if the home is in a equitable position versus the home is not, right? And needs to be short sold. Are you able to

Assist in both circumstances when the home is in an equitable position or when it’s in a negative equity spot.

Bob Kokott (04:58)

Yes, and again depends on where they’re at. If it’s an equitable position, it’s probably easier to negotiate it, but if the bank sees that it’s considered upside down, that more money is owed, they also will work with you. They’ll sometimes extend it by just making the request, asking that lender if they wouldn’t mind extending or extending that foreclosure date out a little bit so you have more time to work with it.

everyone is so different. now talking to you, Dylan, a little bit. you’ve had this little niche that you’re doing with these rent. I’ll share with you my little niche that I’ve done. When I first got into foreclosures, as an investor, I thought, hey, I gotta buy it and I kick you out. that was the only thing I could think of. It’s like you have to leave. Well, I’ve been a landlord for 52 years, so people kept asking me, Bob.

Is there any way that I could stay? And I’m like, well, let’s see. I’ve been a landlord. I guess I could make up a lease. So I own a dozen homes right now that were foreclosed on that I bought either at a sheriff’s auction or before a sheriff’s auction, and I rented it back to them. And I own about a dozen homes that the homeowners are still in them. Now I do another twist to that. Especially if there’s equity, I allow them.

To buy back the home or sell it on the open market. I’ll take a little profit from that. And they can stay in their home. And I have families that have been their home. We have homes that we foreclosed on 25 years ago. They’re still a tenant of mine. They pay every month. They don’t want to lose their home. So again, it turned into my little niche. Now, here’s how it benefits me.

If they stay there for 25 years and then decide to move out, all that equity becomes mine. So it’s a kicker in the end. They pay down the mortgage for several years, but also I can feel good that I’ve kept a family in their home. They didn’t have to vacate, they didn’t have to be evicted. So again, as a landlord, it’s worked out for me, and that’s become my little niche with foreclosures. It’s not that hard to do and

even my banker, at times a bank would foreclose on a home, I would buy it, and they’d ask me, How is it that you’re able to, keep that tenant in there? Well, because if they don’t pay their rent, I can evict them, where the bank has to go through a nine-month to a one-year process to get them out of their home. So to me, it’s easier. and like I said, I have tenants that are religiously just paying their rent month after month after month.

Dylan Silver (07:20)

Wanna ask you about that transition from someone who’s an owner to now a tenant, right? And you mentioned the skepticism of that banker you spoke with. The natural thought here is, well, they weren’t paying their mortgage. How are they gonna start paying rent? So how does that transition happen?

Bob Kokott (07:40)

Well, what typically happens is we get them caught up. we get them back to zero, that they don’t know a debt, that their house now they just have to pay the rent. How does it happen? Well, there’s a small percentage of people that just can’t afford that home, but I’ve found it over the last 35 years. I haven’t had that problem. I’ve had tenants again pay their rent month after month after month without an issue. In fact, some of them drive it to my home.

To make sure I get my rent.

Dylan Silver (08:07)

So I’m imagining then that the places that you’re buying in are landlord friendly and relatively simple eviction processes if it has to go that way.

Bob Kokott (08:17)

Pretty well, it’s state of Wisconsin, you have to give a five day notice. If they don’t pay their rent after that five day notice, then you have to go to court. Takes about three weeks to set up a court date. And then worst case scenario, the sheriff has to move them out. It could go anywhere from a five day eviction to a two month eviction.

Dylan Silver (08:34)

for months or years.

Bob Kokott (08:36)

Right. when I buy my homes though, I’ll typically buy them 30% below the market.

So I have that big cushion there. I’m not buying them at top dollar. I have a lot of equity built in going into the deal. So I don’t feel so bad if I lose a month or two to evict a tenant. Yeah, sometimes they’ll mess it up, things like that. I have that with my regular apartments as well. But I got a lot of equity built in, so I’m not too worried about it. And the other thing that landlords have done over the years.

sometimes you pay your tenant to get out. Now, if I bought a foreclosure, I’ll ask the tenant, I’ll say, would you like three thousand dollars to just simply move out, take everything with you? And here’s three thousand dollars if you’d like to just move out. Some of them have done that, even in an eviction process. The reason they’re not paying you is they don’t have any money, they can’t move. But if you go to them as a landlord and say, Hey, would you be interested?

And possibly paying two thousand dollars. If I gave you two thousand dollars in cash, would you move out and take everything with you? And again, that has worked as well. Not always, but for the most part it works.

Dylan Silver (10:21)

If you’re comparing this strategy of buying foreclosures that you know are owner-occupied versus other single family strategies, such as buying a home on the market that doesn’t have tenants and finding tenants for it, or doing shorter strategies like a fix and flip, and folks who may be newer investors are looking for their niche.

Is this strategy of acquiring occupied foreclosures good for that first time investor?

Bob Kokott (10:48)

I’d say no. it’s a specialty. It’s almost like going to medical school. learn how to manage property and have a renter. And that’s why when I first started buying foreclosures, I had to evict those poor tenants and or the homeowners. But to answer your question, yeah, first time homebuyer again, learn what it’s like to be a landlord. See if you like that.

Then get into it. And when I’m buying pre-foreclosures, I’m visiting the homeowner at their home. I’m sending them letters. I’m marketing to them. Somebody calls me up, says, I’d be interested in seeing what options you have available for me, Bob. I’ll go to that home, I’ll look around, I’ll search it. Now I’m looking to see, is this a good deal? Then I’m asking them, do you want to stay or would you like to leave? What makes sense to you? So now I’m almost like a friendly basis with them.

And then if they’re like, boy, Bob, I’d really like to stay if we could. And again, I’m offering them the opportunity to buy it back or to sell it on the open market. And again, some have taken advantage of it and others just have told me, Bob, I just want to be a renter here as long as you let me. And so again, I have 25 year renters that were originally foreclosed on.

Dylan Silver (11:57)

Want to pivot here and ask you about a totally different strategy. I’ve had guests recently talk about build to rent, which sometimes generates some level of controversy with folks who feel like, well, if we’re building to rent, then we’re gonna have less homeowners, right? But on the other hand, it feels like homeownership in general is more challenging. The on-ramp to homeownership is challenging, and then even as you’re

mentioning now when you are a homeowner, people are finding it difficult to maintain or simply pay that mortgage. What’s your thought on this build to rent idea?

Bob Kokott (12:32)

I guess I don’t understand when they say build to rent, build a house and then rent it out. Is that the strategy?

Dylan Silver (12:39)

Yeah, so folks who may be doing even small subdivisions that look like single family homes, but instead of sold on the market, rent them out.

Bob Kokott (12:48)

it’s an option. I’ve never gotten into it. I’ve looked at it at times, building and it comes with its own set of headaches. If you’re trying to get started to build a house and then find a renter, and it’s like you’re not really educated enough to what do I know about renting a house out it can work. you and I have talked, there’s so many strategies out there that you can do.

you could buy a house and fix it up. You could buy a house that has tenants in it already. You could buy an empty house. you could just flip that house. it’s just so many varieties. So if someone likes to do that and they can buy some inexpensive land and build a house, and of course, building a house, you’re talking several months, a little negative cash flow for a while. But again, to do that as your first one, when we buy a house too, Dylan,

We look at it, are we gonna just buy and flip it? Are we gonna buy and fix it up and sell it? Some houses that we bought, we didn’t want a renter in it. And I would fear a brand new home getting kind of trashed. that’s a big concern of mine. some houses will end themselves to be rentals and they’re a new coat of paint and new carpeting and they’re good to go.

where others have very beautiful woodwork and nice staircases and everything like that, nice game room. I’d rather just sell those rather than rent those out. everyone each of their own.

Dylan Silver (14:41)

You’re also a mentor to investors and newer investors. And like you mentioned, there’s so many ways for folks to find their niche. What do those conversations look like for those investors or aspiring investors when you’re mentoring them?

Bob Kokott (14:56)

I start off with their why. I want to know why are they doing this? everyone has a bigger why. I’m sitting at my desk surrounded by pictures of my wife on and me on vacation. I have pictures of my grandkids. I have pictures of my kids. Those are my whys. that’s why I do it. we went to a seminar and 5,000 people were there

And this investor gets up and he starts off his presentation by I hate real estate. And we’re like, What? This is a real estate. What do mean hate real estate? You can’t hate real estate. And he goes, But I love what it can do for me. And that to me, even though I’ve been doing this for 52 years, there are days I don’t love the real estate. So again, determine your why. The next thing you need to do is.

Get your education. You got to learn what to do when you have a situation such as a tenant not paying rent. So you need some additional education. the next thing that I feel is you evaluate your financial obligations. Now I came from a no money down background. that’s what I got into many, many years ago because I didn’t have any money to put down. Now I do have money, but

I also work with banks that if I can buy them 30% below the market value, they will lend me 100% financing. Or I can cross-collateralize. So again, learn what can you do financially? Because if you try to save up 20% on every deal you made, it’s gonna get tough. You’re gonna run out of money. So again, there’s other ways to buy real estate. then you look for finding a bargain property. You find a bargain, you find something that’s below market value.

next you’re gonna visit the in-property. Now I know we don’t have any probably building inspectors or property inspectors on our call, but you would all know if you looked at a house, you could tell me if that roof is older or newer. You could tell me if the basement walls are cracked or not cracked. You could tell me if you just have to clean the carpet or do you have to replace the carpet? Do you have to paint it?

So again, you do this preliminary search. You look to see what this house is like. And again, you don’t have to be an expert by any means. The next item you would do is now you decide are you gonna move in it? You’re gonna flip it, you’re gonna keep it, or are you gonna pass on it? Do things just not look good? Do the numbers not look good for you? Does a house not look good for you? you make some decisions.

When I buy houses, I’ll look at three options. Am I gonna buy it and rent it? Am I gonna buy it and flip it? Or am I gonna buy it and keep it? I like to have three options. Depends on the economy too. Now renters, it’s tough to find vacancy. there’s not that many renters out there anymore. a lot of places haven’t been rented yet. And

So again, it just depends on what the market’s going. then we’ll analyze the deal. We’ll look to see at all the numbers. And then again, we make a determination. Well, what should we do? And again, your listeners can, just simply go online. They can drive around looking for deals, they can talk to realtors. there’s so many, there’s hundreds of ways to find good deals, just a matter of researching them and finding which one’s the best for them.

Dylan Silver (17:55)

You’re agnostic to niche in that capacity, right? if folks have a specific set of financial obligations or based on their education or based on the lifestyle that they want to lead, they may have a niche that’s different from the next person. Is there any situation that comes to mind of a time where you advise someone not to pursue a specific niche?

Bob Kokott (18:15)

no, I kind of let them do their thing. I might steer them in one way or another, or I certainly would critique it if if some people will ask me too but houses are cheap or out of state, Bob. what do you think about that? It’s like hard to manage, that comes to mind and you lose control.

I’ve always liked control. I was taught to buy property within an hour of my house. So I could always reach my property easily enough. But again, some of these markets though, the California market’s pretty expensive trying to buy a house, but there’s ways. there’s investors out there, there’s other investors that you can partner up with. So in my opinion, nothing is impossible to do.

So again, I’ll guide them.

Dylan Silver (18:56)

property management comes into this conversation here where when folks are looking at buying outside of that, hour, 90 minute, two hour driving distance, now it’s really a hike to get to that property. is there a time when property management makes sense or especially for newer investors, should they be striving to self manage everything?

Bob Kokott (19:18)

They should self-manage it to a degree so that they know what’s getting done and not getting done. there’s a saying out there that people do what you inspect of them, not expect. And if a plumber’s coming and gonna charge you $500 to unclog a drain, you need to realize that’s a little bit out of line. So to some degree, if it’s out of your

distance it’s a ways away. learn some of the basics. And usually someone like a realtor in that market can help. They usually do there’s somebody that’s usually doing some property management. They know enough about real estate to do that. But it can work both ways I just feel you need that education though.

so you don’t get taken advantage of.

Dylan Silver (19:58)

On that note, one of the biggest complaints and hurdles that investors and especially newer investors have is finding good contractors, especially if they’re doing any type of significant rehab for properties that require a larger scope of work, right? Maybe foundation issues, Is that something that a newer investor should really be cautious of if they’re getting into that?

Or if they have the right crew together, even if it’s their first deal, they can walk confidently into a situation like that.

Bob Kokott (20:29)

They need to use caution, on Facebook, they’re always some contractor do asking things like that. When I’ve needed a new contractor, some of the places I go to is, for example, Ace Hardware, Home Depot. I ask them who do they use as a contractor? Sherwin Williams Paint. and then once I have a contractor, I’ll ask that contractor that I know and trust, who might they use for electrical work?

Who might they use for furnace? Then I’ll check them out. I’ll go interview them, find out how long they’ve been in business, and again just search them out, of course, with Google, the ratings they have, the Better Business Bureau used to be more popular. So again, you check them out. And I know that in my early years, if I had an electrician come over to do something, I was right over his shoulder. I was asking them questions: why are you doing this? How come you’re doing this?

Not that I want to be an electrician by any means, but I want to know why they were doing whatever they were doing. Same thing with the plumbing, the roofer. I’m always there with a contractor. I’m watching what they do. If you’re not, even my trusted contractors, I got taken advantage of at times because they just kind of go what they think should get done.

Dylan Silver (21:38)

It goes back to the idea of setting those expectations and inspecting, what you expect. One of the difficulties along the lines of contractors is when folks are doing a rehab, they can find the process dragging out or it not going in the timeline that they expect, or they could find cost increasing. Should folks before they take on a flip like that, partner?

with the flipper or educate themselves on this, or is this something flipping in particular where they can go into it maybe somewhat green as long as they underrate it properly?

Bob Kokott (22:11)

Well, there’s a saying out there that it will cost you twice as much than you expect, and it will take three times as long as you expect. And that’s typically what happens. you think it’s only gonna cost ten thousand dollars, it’s gonna cost you twenty. You think it’s only gonna take a month, and how hard could it be to paint a house and put carpeting in? Well, the floors might be rotted, et cetera. So

Again, meeting with your contractor and selecting a few. If you want to get some estimates, get three. that’s typically a number. And bring in three contractors and see what they say. I know for roofers, you can have such a swing from ten thousand dollars to twenty thousand. It depends how busy they are and how antsy you are to get your roof fixed. you’re much more likely to want to fix if it’s leaking.

than if it’s like, well, it should be replaced in a year or two. So again, I just feel you gotta check it out. less headaches a lot in the way then.

Dylan Silver (23:03)

You’re in the process of writing a really one of a kind interactive book, which you were talking about in the green room before we hopped on here. What was the inspiration there?

Bob Kokott (23:13)

Sharing my knowledge. Again, I’ve always wanted to share my knowledge. And that’s why I’ve been on, I’ve taught people all over the United States on how to buy real estate. I enjoy that. I’m slowing down in my 70s on buying stuff. And so my wife tells me. but I don’t want to stop. And what I’m trying to do with my book is I want people to help me write the book. I’ve got the knowledge, but

I want them to help me write this book chapter by chapter before we put it out in print. And again, I enjoy talking about real estate. till I could talk to you till midnight tonight. love what you do. that’s great. And so again, as an investor, I love sharing my knowledge. that was my inspiration behind my book.

Dylan Silver (23:55)

One of the things that is often difficult for especially newer investors is there’s so much information and they’re trying to determine is this gonna make money? How much of a risk is this? Is this legitimate? If you’re talking to that person who’s unsure and they have an understanding of their finances, but they’re still learning, do you think a reasonable expectation for when they can get their first deal is six months, a year?

What’s a reasonable timeline for looking for that first deal?

Bob Kokott (24:24)

It depends on them. it could be 60 days or it could be five years. part of my book is try it before you buy it. That’s kind of my saying. I want them to try it before they can buy it. I want them to practice buying real estate before they actually do. But again, education is the most important thing because how do you recognize if you have a deal?

If somebody could say to you, hey, I got a great deal for you. And you’re like, okay, what is it? And they name the numbers and the rent. And if you have no idea what that means or what neighborhood you’re in, you won’t move forward with it, or you’ll be a little scared of it. So again, that education’s really the most important thing. So you recognize a good deal and then you’re able to move forward.

Dylan Silver (25:05)

Bob, we are coming up on time here. anything you’d like to mention directly to our audience?

Bob Kokott (25:11)

just stick with it. And you’re gonna have your ups and downs. it’s gonna be tough at times. I went through tough times. many a times in my early career. my wife would ask me, where’s this money that we’re all making in this real estate thing? And it was, well, honey, it’s in the walls. And it stayed in the walls till we sold that property. And again, it’s a

Buy or flip, or it just you start building. My wife and I, we’ve been married 52 years now, but early on, we had a family very, very early, and it was tough. but I’d listen to a CD, I’d listen to a podcast, I would listen to whatever I could and just educated. And I can remember in my first three years, I went to a no money down seminar, and for three years

I couldn’t find a deal. Everyone kept saying to me, that stuff doesn’t work. I’d hear that over and over and over again. And it’s like, but the tape said it did. And I’d relisten to it And it’s like, well, that guy said it works. and that’s what I did. I got an education. I just kept believing in it. And so believe in yourself, know your why, and just move forward.

Dylan Silver (26:12)

Bob Kokott, thank you so much for joining us today. Thanks for your time.

Bob Kokott (26:16)

You’re welcome. Pleasure. Bye.