Why Spec Homes Are the Next Big Thing in Real Estate Investing

Travis Mercer (00:00)
We deployed right around a half a billion for them in that market and picked up about 2,800 homes in about 16 months. There were some fun times, I think our largest day we picked up 186 houses in one day from the building the airplane as we were flying it type of a thing. Literally had to write the manuals on the acquisition, created the acquisition team from scratch and how to do it.

Erika (01:54)
Welcome to the Real Estate Pro Show. I’m your host, Erika. And today I’m pumped to be joined by Travis. He is the powerhouse behind Sycamore Properties. Travis has an incredible track record with flipping over 250 homes and now pivoting towards spec homes. Travis, welcome to the show.

Travis Mercer (02:01)
You
I’m so sorry my volume dumped on me

Erika (02:23)
It’s all good. I was just saying, well.

Travis Mercer (02:24)
Sorry, re-rack that. I’m super

sorry. I’m so sorry. My volume, I went to, were quiet, so went to bring you up and it

you down and I lost your question. I’m so sorry.

Erika (02:34)
I was just talking about your incredible track record and how excited we are to have you on the show.

Travis Mercer (02:40)
Yeah, I really appreciate you having me on today. Look forward to speaking with you about the different opportunities that are out there and kind of the stuff that we’ve got going on in Charlotte and what we’ve got going on with our business.

Erika (02:49)
Yeah, so let’s dive on into Travis. For those who aren’t familiar with your journey, walk us through that. What sparked your

into construction, renovation, real estate?

Travis Mercer (03:02)
Well, I think that and probably not like a lot of people that kind of start this journey that you know, the corporate world kind of gets pretty drab after a certain point. So I had gone through the traditional route, got my college degree, went to work for a company up in Chicago, was selling IT equipment. And one was the weather and the location up there was also some of the you know, the corporate, you know, droning that wasn’t great. And so I relocated, I got an opportunity to work with Wells Fargo in the Cleveland area.

and was doing financial loans for them. And they promoted me, moved me to Indianapolis, got my own office there, turned that around. And the income and the bonus checks for what I felt like I did for that company were not, I didn’t felt they matched what the effort that I put in. And so I started looking for alternative ideas. And I’d always been interested in kind of passive income ideas and real estate, you know, income and stuff like that. at that time, I was motivated enough to start looking deeper.

So I really started searching for different places around the United States that might have the right demographics and the right growth potential. And that was in like 2004. So I started looking around and Charlotte came to the top of the list, one for the, well, the weather’s great here. The demographics in the population would have a good strong growth. I think we put on about 24,500 people last year. Last number I saw, we got 157 people, I think a day moving to Charlotte. When I moved here in 2005, it was about 122 people a day.

we’re the second largest financial capital United States. We’re second only Wall Street. So a lot of New York is kind of waiting to get here. So that, in my opinion, had really good ⁓ reasons for the real estate market in Charlotte to continue to grow. So I came down to Charlotte, got my real estate license and worked with another investor, kind of got started, got going and was primarily doing retail. And of course, the famous 2008 slash nine collapse kind of came into the market, as I’m sure as everybody can remember.

And I was sitting there one day and things were slow as everyone could imagine. And Warren Buffett came on the TV. He was on Squawk Box.

And I remember distinctly sitting there saying, man, if I had a way to go buy several thousand houses right now, I’d do it. I’m sitting there talking back to the TV like I could go do that. Like I’ve got the underwriting. I’ve got the metrics. I guess this should be done. And one way or another, I ended up getting a phone call from a client I was working with at the time that was buying some rental properties and they got a call from

Blackrock and they decided they were going to deploy

into that sector. So I became the acquisitions manager for them and that was a great experience and I got to work with those guys. was full

building the airplane as we were flying it type of a thing. Literally had to write the manuals on the acquisition, created the acquisition team from scratch and how to do

worked with a bunch of different agents and

we deployed right around a half a billion for them in that market and

picked up about 2,800 homes in about 16 months. There were some fun times, I think our largest day we picked up 186 houses in one day from the

So those metrics, you know, just buy, buy, buy, buy, buy. And that, I left that fund as acquisitions slowed down. They’ve kind of trimmed and added here and there, but that fund, I think that we probably started in the 2008, nine, maybe into 10.

was probably about a half a billion is probably worth about one point around some rough numbers, probably about one point three to one point four trillion now. So that was a great opportunity, and that was kind of where I got started and where I kind of cut my teeth, if you will. And then as that kind of culminated, they weren’t buying townhomes or condos at the time. So I was allowed to buy those on the side. So I guess they’ll kind of bring us to our very first flip. And we picked up one from the courthouse. I we paid 78 for it.

and we had a buddy of ours go over and paint it for like 3,500 bucks. It was in fantastic shape. I’m an agent. We listed it up, sold it for I think like 135-ish, ⁓ 128, nine actually, I think now I recall it fully. But that day when we sold that, I called up my now wife and I was like, hey, she at the time was running it up. She was managing the mall in Gastonia and I had met her in real estate class. And I was like, okay, we’ve got a new job. It’s not, we’re not doing.

what we’re doing anymore. So she was awesome. She went and got her general contracting license and we got out and start flipping houses. And as you stated, we’re about 250 of them in at this point.

Erika (08:13)
Yeah, that’s awesome. Was there a specific moment or deal that got you hooked in the construction specifically?

Travis Mercer (08:23)
So the reason why we, she had a real estate license as well and I was fortunate enough to meet her in our real estate, actually in my real estate class, he was post-licensing. Sat behind her and kind of drove her crazy until she agreed to a date. But we went into that sector of

market just because you end up paying a lot with general contracting fees and stuff like that, knowing what needs to be done. So it was primarily the vertical integration thought on it. And if you think about,

home buyers, it’s not men. It isn’t. It really isn’t. so, what, and I see it still today, every day when I cruise the MLS, which you do with a lot of house flippers, and in my opinion, it’s big mistake. They’ve got men designing houses that women are buying, and it’s not nothing against men or for men or for women or against men or women. It’s just that typically in a real estate purchase, the woman is the final say on which house is gonna be.

We felt like that design aspect was really important and the vast majority of our flips right out of the box, were able to break 95 % of the markets we go into, we sell our product for a higher price per square foot than anything else on the market. So that was kind of why we went that direction was a vertical integration and thinking about our final customer.

Erika (09:41)
Yeah, makes a lot of sense. And speaking about talking about your market, originally you did a lot of flipping homes and now you’re bringing in the spec home construction. Can you share what’s driving your shift towards that? What’s the vision there?

Travis Mercer (09:57)
Yeah, so if you kind of look at a larger,

it’s a larger market at a whole, you’ve got wholesalers on a national level that are pulling back, you know, up on their stocks, they’re in tough shape. If you look at the total new permits pulled on a national level, I think there’s a lot of people predicting a pretty significant pullback. A lot of people, know there’s guys that are, oh, it’s going to be a crash, it’s going to be a crash. In certain locations, I’m not going to disagree with that. I think you’ve got a lot of movement that happened through COVID that probably has got people living in places they don’t necessarily want to be.

⁓ But as we kind of look at that market to continue as what we look at in the totality of the market, you kind of got a bifurcation of people that got in before that 2020 market where they’ve got the rates that are, you know, sub three. ⁓ I’ve got a two handle. I’m sure there’s I know several people with one handle mortgages. And so that kind of locks in that stage there. And as the general house flipping craze

If you will because everyone’s kind of gotten on HGTV has decided that they watch Joanna Gaines and they can do what she does So is that market is continued to supersaturate my opinion We’re trying to look for what is kind of a you know, another better market and in Charlotte being such an old city we’ve got a lot of infill product that wasn’t built on initially because it wouldn’t make cash flow sense at the time because the additional building costs there’s so much dirt you could just go build somewhere else, but

As that’s continued to fill in, a lot of these infill lots, tear downs and stuff like that are creating better, different, new opportunities. So we were kind of moving over towards that just because a lot of our flips is, especially if you start getting into the larger ones, if you’re doing a half million, million dollar projects in homes that are three, know, 2500, three, four thousand square feet. Your time in going through that house and ripping everything out, it’s you spend the same amount of time building a brand new house. And what we can offer to a customer at the end of it with a 10 year warranty, you know,

all the goods coming from the builder. We’re finding that market’s a little bit easier to sell to a client. And we’re able to offer a slightly unique product as we’re offering a new home in neighborhoods that, you they’ve got a lot of remodeled homes, older homes, but not a large plethora of new home options in those locations. So we think there’s a lot of opportunity in what I would kind of call those infill lots to kind of go back behind what the original builders were doing and provide some new product in specific locations. So I think it’s, you

That’s kind of opportunity and that’s why we’re shifting that way. My wife also has some medical issues, unfortunately found out that she’s got ⁓ stage four cancer we found out a year ago this past Mother’s Day. as she kind of comes somewhat offline with the general contracting work, we’ve got other designers and stuff. So we’re looking to move our business around a

bit to search for those new opportunities. And I’ve gotten an opportunity as I mentioned earlier with a lender who’s offering some partner stuff. I don’t know if you want to go into that, but we’re looking to kind of switch our market over.

So that’s that’s kind of the reason we’re looking to do that.

Erika (13:34)
Yeah, yeah, wow. you know, with working on all that stuff, what’s been the key to being efficient and profitable at that scale and then, you know, the market shifting at the same time?

Travis Mercer (13:46)
So the market shifted here too in Charlotte. I think we’re tracking about down 2.86 % last time I looked in Charlotte. That was probably last week. So we’re just changing our underwriting out a little bit of that. I’ve been, I’ve continuously, I won’t underwrite in summer months. ⁓ I won’t use them. June, July, August, if you’re sending me comps for that, I just won’t use them because as everyone, if you don’t know, you should know the real estate market is extremely cyclical.

The vast majority of homeowners are, you you’re looking at kids and families. And so that school year, school season is a big driver when people do and don’t move. So trying to line up, you know, the product still comes on at the right time of year is a big issue here. ⁓ So that’s, you know, some of the things that, you know, we’re looking to do is the timing, time of the market.

Erika (14:41)
Yeah, Travis, let’s talk a bit about the spec hall market because I know that’s what you were shifting to. What’s the biggest challenge you’re seeing and how are you tackling it?

Travis Mercer (14:53)
Well, so obviously I’ve got experience with scale ⁓ with my, you know, with invitation home. So

trying to look at this, you know, larger business model of the house flipping spec building at large. If you, know, I read a book called how to make a few billion dollars. It’s a fantastic book. I recommend it highly to anybody, but it basically discussed rollup programs and what I think that’s really been hard to do to master in this house flipping spec world is that, you know, it’s

It’s how to get the whole thing together. So what my kind of vision is like, okay, let’s get a list of preferred

that we can use in growth areas. Let’s get a list of preferred wholesalers. They can send us, know, potential lots, potential deals. And I think we’ve got the capital piece kind of solved here to be able to bring that capital into the market and to go after that unique product. In order to get to that scale,

As I mentioned earlier, house flipping is depending on the year of the product you’re buying, if you’re buying something post 1978, blood based painting, etc. It’s just it’s a lot easier to transfer the labor force into somebody that’s already designed into the labor force. So we’re looking for builders that are building at least probably, you know, 100 houses a year. mean, some of the, know, semi-customs, probably 50 to 80 houses a year. And then for the lower end stuff, we’re looking for builders that are building two to 300 homes a year. So

When we kind of get into their system, we get the lot picked out or the tear down. It goes into their system and you can kind of pick out your puzzle piece and say, okay, this house goes here, this house goes here. And it saves on all the costs of, okay, I gotta go figure out where my blueprints are for this, blueprints are for this. A lot of these builders have already, that work is done. And if you look at the time cost of capital, if you can get it lined up where you’re building a house in six to nine months versus trying to do two flips at, know,

per quarter, three months at a time. And our market’s not sustaining that, our days on market have climbed. So you can’t rotate as many products in a given year as you historically could here. So offloading that labor and bringing a superior product to market is the primary reason that I think it’s a ⁓ good reason to head that direction along with the competition kind of lifting off the gas a little bit here. It may offer an interesting window and opportunity to get into that particular sector.

Erika (17:57)
Yeah, absolutely. That’s exciting, Travis. Are you incorporating any specific design trends or are there any strategies you have to make those homes stand out?

Travis Mercer (18:08)
Yeah, so and this is not my strong suit for sure. And this is a nice kind of stare clear. That’s the best I can. We’ve got designers that we

hire and use and bring in. Raquel, my wife, actually has been doing a fantastic job with ours. So she’s helping with design for now. We’ve got other builders that come with my favorite spec builder, Grand Custom Builders here in Charlotte. I can’t recommend them high enough. We had a spec build with them and he crushed the record for the price per squall.

price per square foot sold in that zip code, I think by about $112 a square foot. But they’ll come with their own designers and stuff like that. So it’s really that, it’s getting that design into the build and making sure that you’re getting the product right from the get go. And I think a lot of that, offering that uniqueness is in the design of the home itself. So you can say, okay, we’re gonna take a proverbial track home and then you’re gonna add.

A lot of stuff you would do in a traditional flip. Say, okay, we’re not going to do builder grade faucets. We’re not going to do builder grade lighting. We’re not going to do builder grade, you know, the fixtures and stuff like that that you typically change out in a normal flip anyway. So it’s just trying to it’s moving that builder grade product up out of a builder grade into a proverbial. I don’t want to call it a semi custom, but it’s close to those lines. So I think that that’s, know, that’s important thing to stand out. And then the other thing is just the locations that we’re able to bring to market as we.

as Charleston Older Market. So we’ve got a lot of stuff here that’s we’ve got a fair amount of stuff that’s a tear down and we’ve got a lot of infill lots that weren’t built on by original builders just because it wasn’t cost effective at the time. So that’s why we’re kind of searching that that sector of the market out here. And if we get this test drive right, I think that RoofMax is going to try it. I’m sorry, RoofMax. HouseMax is trying this in other places as well. And if they’re able to kind of get this to work, I think that there’s a larger roll up.

in that and offering new unique products in areas that they’re not currently being offered.

Erika (20:03)
Yeah, yeah, totally. Travis, I want to transition a little here. As I’m sure you’re familiar with, every real estate pro has a story where things didn’t go as planned. Maybe a deal or project went sideways. Maybe there was a moment that tested your resolve. Do you have any moments like that in your journey and what did you learn from it?

Travis Mercer (20:27)
Yeah, I’m sure more than one. I’ve got a couple that come to mind. I don’t know which one’s gonna be more entertaining. We’re in the short-term rental world as well, so we’ve got some lake houses and stuff like that. There’s some entertaining stuff there. I think probably the most beneficial, excuse me, lesson for the listeners, the people out there looking to get into stuff like this is just we had a general contractor that pulled off a really big scheme on us that

It caught us out. We met with him. He produced the general contracting license. He produced his ID. We checked his license. It was active. We started working with him. And by the time we kind of got through it, we went back in behind him and started realizing, hey, this isn’t to code. This isn’t right, et cetera, et cetera. Come to find out later, this person had completely frauded us. They’d given us someone else’s general contracting license and went and did all that work.

and it stole our money. And then it tried to put a lien on the property under someone else’s general contracting license. When we finally got ahold of the actual person that had that general contracting license, they had no idea that any of this had occurred. And trying to get that straightened out. And that particular one, we were working with a client that we’d help them buy a house and…

that particular house came with another house on it was all beat up. So we’re flipping that for him to sell it and subsect it off. So it was, it was a mess. think the biggest thing, know, and that’s, know, get everything in writing. And as an agent, you know, as a real estate agent, that’s a big, big thing is getting ready, getting ready.

And even sometimes you get in writing, don’t just trust, you can’t just trust the writing. You’ve got to make sure you do your full due diligence, even, you know.

I can’t believe he stuck that by, that was one big, big lesson that cost us. I mean, that was, think he probably got away with $40,000 at work that we had to go back and redo because it wasn’t none of the actual permits were there. So that was a that was a big lesson for us. Make sure you do your due diligence on even in your your G.C.’s licenses don’t always mean everything.

Erika (22:36)
Travis, you mentioned that with Sycamore Properties that you’re looking to scale, which is really exciting. Are you focused on hiring, systemizing processes, or something else?

Travis Mercer (22:48)
So, well, Sigmoor Properties is the brokerage that I work with. ⁓ Our flip company, our GC company, as I mentioned, we’ve kind of been with our heads-downs working over here. The CTRRRLC, we now have a joint venture deal put together. ⁓ So with HouseMax. So we’re looking to work with them to kind of continue that out. But Sigmoor Properties and what we’re looking to do with HouseMax, as I previously mentioned, we’re looking to try and get a list

of preferred builders, wholesalers, real estate agents. If you have a deal that you’re looking at and I can kind of give you some general numbers on that. But right now in Charlotte, if it’s got city, source, city, water, right around 100,000, if you’ve got a house you can sell for $400,000, that’s a deal for us. If you’re a builder and you want to say, hey, I know a lot or I’ve got this sitting here, I’ve got sitting there.

We wanna try and start bringing that in. working on a landing page. Right now, they can send stuff to my email address, which hopefully you can link to your podcast at the bottom. But we wanna start growing in the Charlotte market. We’re looking to connect with, like I said, builders, wholesalers, real estate agents that can bring additional deals in, know that the funding’s there. So the builders are gonna get paid their building fee. Realtors, we’re happy to pay your commissions for things you bring us to. We’re happy to let you sell the product at the end as well.

looking to try and really try and do a roll up into the industry. And if we can get its world out in Charlotte, I believe that there is a smaller but national potential into, we would look at probably the top five growth markets in the United States is where we would head to. Charlotte is, so much of the growth is in Texas, it’s pretty phenomenal. Charlotte’s the six fastest growing.

Larger Metro in the United States and we actually have the largest, fastest growing per capita down in Waxhaw in just south of Charlotte. So we think this is probably a good area to get started. And so that’s where we’re really looking, you know, as you’d mentioned earlier, kind of got your weaknesses. I think is one of the things you kind of like to cover on your podcast. And one of our biggest weaknesses has been our lack of, you know, networking. It truly has. And what did kind of the change in my wife’s, you know,

medical history here, we’re looking to kind of move that out and find out what other bigger, newer opportunities are out there. So that’s a big driver of what we’re looking for is we’d like to try and bring the product in. For some of those people that don’t, they haven’t been in game as long, maybe you’re an agent and you maybe flipped one or two houses and you’re like, this would be a deal, but I don’t have capital. Okay, well, let’s look for those win-win-win situations. ⁓ That’s really what we’re trying to drive for. Hey, if you think that you can make a

You can win as you get your real estate commission or you can win as a builder. get to build an additional X number of homes a year. An agent, get a commission and then the real win at the end of the end client who gets what we believe is going to

an excellent product in unique areas. So that’s what we’re looking to grow out.

Erika (25:52)
Absolutely.

Travis, before we wrap up, if someone wants to connect with you, maybe collaborate on a project, what’s the best way for them to reach you?

Travis Mercer (26:03)
Yeah, it’s sycamoreproperties travis at gmail.com. It’s sycamore spelled just like a tree, like a sycamore tree. S-Y-C-A-M-O-R-E properties with an S at the end plural and then travis at gmail.com. ⁓ We’re getting some, like I said, we’re working on landing pages and stuff like that. We’re kind of new in this deal, but we were, was excited to get started and want to come on and kind of share some of the news with you and your listeners.

Erika (26:24)
Yeah, Travis, your journey is inspiring. Thanks so much for being on the show today.

Travis Mercer (26:29)
Yeah, I appreciate you having me on. I appreciate you giving me the time and I appreciate what you’re doing on the podcast world. I’m a big fan of podcasts. If you want to catch me on some of my older episodes, I’ve got another podcast too, The Trickster’s Take on Real Estate Investing. If anyone wants to give that a listen, it’s got a lot of the different various antics of some of the house flips and stuff that we’ve done. It’s kind of with another ⁓ investor buddy of mine. He’s actually also my broker in charge, Tim Melton. He runs Sycamore Properties.

So if people are for more, want to hear more about what we’re doing in our story, there’s the trickster’s take on real estate investing is also another podcast you can check out.

Erika (27:04)
Love it. Sweet. Yeah, everyone should check that out. For everyone listening, if you got value from this episode, make sure you’re subscribed to the Real Estate Pro Show. We’ve got more conversations coming up with heavy hitters like Travis who are building incredible real estate businesses. We’ll see you on the next episode.

Travis Mercer (27:22)
Thank you, Erika