Jonathan De La Garza Reveals How Investors Can Find Discounted HUD Homes and Fix-and-Flip Deals

Jonathan De La Garza (00:00)
Absolutely. This is one of the secrets that we’ve been very successful with regarding HUD homes. What HUD does when they list their properties is usually for the first 10 days, they are only available to be purchased by an owner occupant. So investors have to wait 10 days. There is an exception. The HUD homes that are very, very, very bad condition, they’ll do only a five day bid period for owner occupants and then they’ll open up to investors. And with HUD homes, if a property sits on the market.

Scott Bursey (02:00)
Welcome back to the Real Estate Pros podcast powered by Investor Fuel. I’m your host Scott Bursey today. Pros Jonathan De La Garza. The HUD King is here to share the fuel of scaling a massive fix and flip operation by mastering a digital first approach. This episode is packed with value. can deploy immediately. So fasten your seat belts. We’re ready to accelerate. Jonathan, welcome to the show.

Jonathan De La Garza (02:25)
Thanks, Scott. Thanks for having me.

Scott Bursey (02:26)
It is just awesome having you here. And for our listeners who may not be familiar with your path, please give us a front row seat on how your career ignited and where you’re putting your fuel

Jonathan De La Garza (02:37)
Well, pretty boring story. I started out as a waiter and while I was waiting tables, I had the good fortune to meet

real estate broker in San Antonio who was out of El Paso. His name was Dan and he still is a real estate broker and a mentor. And Dan asked me if I’d ever considered getting into real estate and as a waiter, I didn’t really have any other big aspirations. So I said, sure, I’d give it a shot. And this was back in 1994. So it took me…

actually two years to get my real estate license. So in 1996, I got my real estate license in San Antonio and I never looked back. It’s been a great, interesting ride and I love real estate. I love helping people achieve the dream of home ownership.

Scott Bursey (03:16)
That’s awesome. And Jonathan, what really caught my attention about you was the way that you’ve been able to leverage technology to scale your reach, specifically by filming almost 2000 real virtual tours of HUD homes. That kind of virtual deal volume is next level.

Jonathan De La Garza (03:33)
Yeah, one of the things, so when Dan got into real estate, got me into real estate rather, he had landed a contract with HUD, with the government. And one of the requirements as a listing broker was they require you do virtual tours. But all they required was a simple photo of a room that panned aside. And I thought that’s not really a virtual tour. And I took it upon myself in 2012 to start actually filming the houses, walking through each house with a camera, since I was already previewing them as a realtor.

And over the course of, since 2012, I’ve filmed almost 2000 real virtual tour. I call it a real virtual tour because getting online is a real tour if you look. Some of them are just still photos at PandaVille. It’s not really a virtual tour, but it’s been fun because people nowadays are so smart and savvy. They’ll be at their computer and they’ll do the looking on their own. So I’ve received a lot of leads from people. Hey, I saw your video. I’m interested in this house.

Scott Bursey (04:25)
That is so neat. Okay, Jonathan, let’s open up the throttle here a little bit. What is the biggest advantage of focusing purely on HUD homes in a single-family residential fix and flip model?

Jonathan De La Garza (04:36)
I would say the bid submission, the offer submission, because you get answers very quickly. Usually the next day if you submit an offer to HUD, selling a number of different types of foreclosures and properties, sometimes you get this back and forth with banks or highest and best due by this date and they have these soft close auctions and it can be frustrating for buyers. So I like the simplicity of submitting offers for your clients or buying them yourself as a realtor and investor.

You get an answer usually the next day. only downside is the limited inventory, which is a bit of a bummer because when I started doing this, I started in 96 in San Antonio. I moved to Houston in 2000 and any given week in Houston, in Texas rather, there would be anywhere from about 600 to a thousand HUD homes on the market throughout the state. Now it’s about 130. So it’s quite a big, a lot less inventory, which is a bit of a challenge.

Scott Bursey (06:15)
Now given that the inventory has decreased, where do you see this niche market going over the next, let’s say 10, 15, 20 years?

Jonathan De La Garza (06:15)
Gotta roll with the punches.

Well, we’re hoping that things are going to change and more more inventory is going to hit the market. It’s been slowly trickling up. I remember about five years ago in Texas, there would only be about 30 to 40 HUD homes on the market. So now it’s actually up to 130 in Texas, which is nice. If we never know what’s going to happen, but I do like a lot of people that I talk to realtors in particular, they don’t like dealing with HUD. They don’t like dealing with the government. So I find that to be a bit of a gold mine because it’s an untapped market.

And for investors, you know what to look for, which will give you some secrets closer to the end of this podcast on what you should look for, I think it’s a good opportunity.

Scott Bursey (07:00)
What internal process needs the most attention to manage the high volume and required specific timelines of HUD contracts?

Jonathan De La Garza (07:08)
How do you mean?

Scott Bursey (07:09)
Well, as far as, ⁓ you know, the, constraints, the loopholes, the, the ramifications HUD contracts can be complex. If you could just take us down that road a little bit, please.

Jonathan De La Garza (07:22)
Probably the main thing that I get questions about bidding on Hottams, because I get calls from other realtors and they don’t know what they’re doing. The main thing is to get registered with Hottams, which is absolutely free. It’s easy to do. agents, if you’re an investor using an agent, you want to make sure that your agent knows the paperwork process. It’s not hard. It’s simple. But you are dealing with the government that has timelines. It’s actually an asset manager for the government.

And if your agent doesn’t know what they’re doing, they could bungle your contract and get your contract canceled. So you want to really make sure you’re working with, uh, this is really directed towards investors. If you’re working with the realtor to buy an investment, HUD home, I would suggest if you don’t call me, uh, call the listing agent because the listing agents usually know the process and they will be able to help you, uh, get your contract accepted by HUD. And you’re not going to lose any days or be in jeopardy of getting your contract canceled.

Scott Bursey (08:14)
Thank you for expanding on that. Managing documentation and compliance is really, Jonathan, the silent killer for many pros. You have to be buttoned up. It’s really a process.

Jonathan De La Garza (08:26)
Mm-hmm.

For sure, yeah, totally. I can completely relate to that. You really want to have all your documents in line.

Scott Bursey (08:34)
Sure. What’s the next cycle of virtual tour technology that investors should be paying attention to currently as you see it?

Jonathan De La Garza (08:41)
Well, I really like the Matterport, the 3D virtual tours. Those are really, really neat. You usually see those on higher end properties, because I think it’s a bit of an investment, but I really think it’s worth it, especially if you’re an investor who’s going to buy a home. You’re not flipping up $120,000, $130,000 home. If you’re flipping something to $300,000, and higher, that technology, I think, is very, very valuable, and drone technology too. And it’s easy. You can get yourself a drone or hire a good photography company to get some great photos for you.

Scott Bursey (09:07)
Well, spot on. And if someone’s listening to this and they’re thinking, this is someone that I like to learn from. What would you like them to know

Jonathan De La Garza (09:16)
For better or for worse, I’m basically a one-man operation when it comes to the HUD home stuff. I’ve been it so long, I try to keep it simple. like I said, ⁓ whether you want to work with me or you want to reach out to the listing broker, I encourage you to talk to somebody that knows what they’re doing. That kind of information that takes years to learn is very valuable. So, don’t skimp on somebody that expects to get paid for their knowledge because,

Knowledge is time and that’s expensive.

Scott Bursey (09:46)
Yes, and you have decades of experience. Given that experience, I guess, what are your thoughts on networking and relationships?

Jonathan De La Garza (09:57)
I think that’s great. We’ve gone to several different networking events. Most of the networking events that me and my business partner have gone to are really to explore finance options.

That’s one of the big keys. If you’re a new investor, you want to get your financing squared away because that’s a big part of the money you’re going to make is what are you paying for the money you borrow and simplifying it. lot of these, we’ve used hard money lenders in the past and a lot of their criteria changes year to year. Some of them are at 70 % LTV.

Going to those networking events are great if you want to try to get with the funding aspect of it. I’ve not had a lot of networking with other realtors or investors, but the financing is definitely a valuable thing to learn.

Scott Bursey (11:12)
financing aspect of things. So what is the biggest policy or regulation change you see coming that could impact the bidding process for HUD inventory?

Jonathan De La Garza (11:22)
Well, we’re just hoping that the rates will kind of stimulate more of a buyer’s market here ⁓ because it seems like recently the buyers are shied away. So the market has gotten a little bit tough here in the Houston and the San Antonio area for my sister, who’s a realtor in San Antonio. Things have slowed down a little bit. So we’re hoping that interest rates maybe will come down a bit and stimulate more of a buyer, a buyer pool.

Scott Bursey (11:43)
Really, Jonathan, it comes down to being prepared for those shifts, you know, that inevitably you’re going to experience in the game.

Jonathan De La Garza (11:50)
Yeah, without a doubt. This industry is always changing. ⁓ As a realtor and an investor, with the whole commission change thing that went through Texas, it’s changed some aspects of it. But you got to be able to adapt.

Scott Bursey (12:09)
Absolutely. Turn on a dime is everything. So let’s go underneath the hood. And, you know, I’m really curious on this after filming almost 2000 virtual tours, what is the most common red flag you can spot instantly that saves investors time and money?

Jonathan De La Garza (12:26)
Well, if you’re an investor and you’re gonna go, we’ll use HUD homes for an example, you’re looking to potentially buy a HUD home and flip it. I always recommend being aware of what your costs are going to be. Now some costs you won’t know. You won’t know how much damage is behind a wall until you open it up, but you can probably get a pretty good idea. So if you’re an investor who is not handy or hands-on or you do some of the work, which is great, I’d love to be in that position someday, take a contractor with you on any property, or otherwise.

because you really want to get a grasp on how much am I going to need to invest in this property to get it where I want to be. And you don’t want to just guess because that can be very expensive.

Scott Bursey (13:00)
Yes, and we talked about your long term vision. How about some short term strategy?

Jonathan De La Garza (13:05)
Well, right now we’re working on a flip house and we’re hoping to get that wrapped up pretty quickly. our new venture is new construction. I myself have not done new construction, but my business partner is this very small builder here in the Houston area. So we’re getting ready to break ground on 11 units, which is exciting for me. So that’ll be a new, I don’t know that answered your question, but for us, new construction is gonna be really exciting.

Scott Bursey (13:29)
I’m excited for you and Jonathan, you’ve seen thousands of HUD homes and managed a fix and flip machine for years. If an investor is moving from traditional deals to specializing in, you know, let’s say high volume, compliant world of HUD homes. What is the most critical system or team member they need to place ⁓ to transition from doing a couple of deals to scaling to like five deals a month in a HUD operation?

Jonathan De La Garza (13:57)
Well, like with any flip process, have your trades in line. That’s really, really valuable. Have a good, honest, reliable group of tradesmen that you can call, I’ve got a Tyler that can do this, a sheetrock guy, a roofer, an AC guy. Luckily for us, my partner and I, we do a few a year, so we’re able to manage that on our own and do some of the repairs that we feel that…

we want to do because there’s a bit of ⁓ something rewarding about doing a job yourself and being happy with how it comes out, know, hands on sort of a thing. My dad was a machinist growing up and so we worked on our own cars and it was rewarding to fix your own car. I would say if you’re not going to do that, make sure you have a very reliable and honest group of tradesmen contractors that you can rely on to manage your repair jobs that you’re not going to do as an investor.

Scott Bursey (14:47)
That hands-on approach is really, it pays huge dividends. The personal touch, if you will. Thank you for expanding on that. And before we let you go, Jonathan, you you’ve given us a lot of valuable tips already, but is there any golden nuggets perhaps that you could leave with our listeners today?

Jonathan De La Garza (15:47)
Absolutely. This is one of the secrets that we’ve been very successful with regarding HUD homes. What HUD does when they list their properties is usually for the first 10 days, they are only available to be purchased by an owner occupant. So investors have to wait 10 days. There is an exception. The HUD homes that are very, very, very bad condition, they’ll do only a five day bid period for owner occupants and then they’ll open up to investors. And with HUD homes, if a property sits on the market,

usually about 45 days with no offers, they’ll reduce the price. And if you keep your eye on those, once HUD starts reducing the price, they can be an incredible value. And a good example is the one that we just bought recently, which is in El Campo. The county appraisal on that property is about $364,000. It’s a big house. It’s a mid-century modern, almost 3,000 square foot, single story home. Really neat. HUD listed it initially for 196,000.

Now El Campo is about an hour and 20 minutes away. So it’s a small rural town that realtors barely sell normal homes there, much less hut homes. So I kept my eye on it because I thought it was interesting. They reduced it from 196 to 180. Then they reduced it to 164, then 148, then 133, then 117. So this was reduced five times. So mind you, it was listed for 117,600. It appraised about 360,000. I offered 80,000 and they took it. So that’s an example of

If you’re an investor and you get lucky like me, keep an eye out on these HUD properties that get reduced in price because the more that they reduce the price, the more flexible they are on what they’ll take because 80,000 on 117 is unheard of and 80,000 off of the initial list price of 196 is crazy. So we’re really excited about that property. We bought a number of HUD homes that I’ve kept as a HUD home specialist. I keep an eye on the properties that get reduced and the last three that we bought were all reduced multiple times.

And that allows us to go in and buy them really, really at a discount. So whatever state you’re in, whether you’re in Texas, anywhere across the the website to go to, if you don’t know, is hudhomestore.com. When you go to hudhomestore.com, you’ll see a map of the United States. Just click on your state and it’ll show you a map of where the homes are. If you create a login, and what’s neat about the HUD home website is you don’t have to be a realtor to create a profile. And you can download in an Excel sheet, the listings, which is easy to do and keep it on a spreadsheet.

And on some of them, now HUD isn’t the best at updating their data, but on some of them they’ll even put on the Excel sheet reduced in price. There’s one here in Sugarland. Sugarland’s a very nice area just outside of Houston. And this is one that they just reduced the price, but they didn’t put it when I downloaded the Excel sheet just to cross-reference my master sheet that I have all these HUD homes on. They didn’t have the price reduced designation on there. So don’t always follow that. If you’re not a Realtor, you don’t have access to the MLS, you can always go to Realtor.com.

and search property history and it’ll show you when that property was listed and it’s been reduced in price. And as I said, if anyone watching this, take away anything and you want to buy an investment property that is a HUD home, look at the properties that have been reduced in price because that’s when you can sneak in and steal.

Scott Bursey (18:49)
There you go, listeners. Stay on top of things by doing your homework. Thank you for that, Jonathan.

This conversation has been pure fire. But before we let you go, if our listeners would like to follow your journey or collaborate with you, what is the best way for them to reach you?

Jonathan De La Garza (19:06)
I’d say subscribe to my YouTube channel. That’s where I post the HUD homes that I film and I don’t get to get to all of them all the time. Being busy as a realtor representing buyers and doing our own flips. I try to get to as many of the HUD homes in and around the Houston area as I can, but I would say either go to my website or go to my YouTube page. The website’s hudking.com, very easy to remember. And I think it’s youtube.com/TheHUDKing. And yeah, if you’re in Texas and you subscribe to my HUD homes.

to my YouTube channel rather, you’ll be notified instantly of when I upload a new video.

Scott Bursey (19:37)
Jonathan, thank you for joining us today and sharing your expertise.

Jonathan De La Garza (19:41)
Yeah, thanks, Scott. appreciate what you’re doing for the real estate community and real estate in general. It’s really nice to connect with other like-minded people. And if there’s anything I can do for you, don’t hesitate to let me know.

Scott Bursey (19:51)
And to our listeners, we appreciate each and every one of you. If you got value from today’s episode, please subscribe. We’ve got a lineup of exceptional guests, just like Jonathan, who are making huge moves in the market. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.