No one is immune to making mistakes when starting, especially in this ever-changing industry. J.R. Reed and Andrew Jobe, the co-founders of Fresh Start Homes LLC, know this to be true. And in this episode, they join Don Costa to share with us how they got into real estate and built their company. They share both the rights and wrongs they did when it comes to finding leads—from door knocking to utilizing other marketing channels like Facebook. Dipping their toes into different avenues of real estate, J.R. and Andrew also talk about how they keep the discipline throughout lean times. Plus, they impart some great lessons they learned on keeping a business healthy and mitigating issues in the industry.

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Mistakes And Lessons From Building A Real Estate Business With J.R. Reed and Andrew Jobe

I have two amazing guests to meet now. Before I jump into that, I want to talk about what we’re doing over with the Inner Circle Elite. We have some amazing things. We’re building an incredible community. Investors that look out for each other, have each other’s back collaborate, and do some amazing things together. If you’re interested, if you’re doing deals, and you’re looking to take your business to the level, make sure you go to BeInThisRoom.com and check out what we have. With that said, I have JR and Andrew with me now. How are you doing, guys?

Great. Thanks for having us, Don.

Doing good.

I appreciate having you here. I’m excited to jump into what you’re doing now, but before I do that, it’s always important to let the audience know where you started. Let’s talk about how you each got into the business, what that looks like, and what brought you to where you are now.

We have similar paths. JR and I met in undergrad at UH where we originally met. We then both took corporate careers for ten years and did the corporate gig. He and I stayed in touch and just over the years, we always talked about buying rental houses or trying to buy a rental house together. At one point, we sat down and tried to do that and then learned about what wholesaling was.

 

 

We kept trying to buy a rental house off the MLS and it never was a good deal. They didn’t work or the numbers weren’t right. We started going up to meetups with different groups around Houston and started learning about the community, learned what wholesaling was, and focused on wholesaling as a means to help us find rental properties.

Let’s talk about some of the first deals you’ve done. What would the first deal look like?

The first deal we did, we were learning from a guy who was flipping houses here in Houston. It was a buddy of mine. A friend of mine’s boyfriend was flipping a bunch of houses, buying them at the auction, and that type of thing. I’d go hang out with him and buy houses with him at the auction so I could learn and help him buy houses. Finally, one day I was like, “If I find you one of these foreclosure houses before it goes the auction, would you buy it from me?”

He’s like, “Yeah, I’ll buy it from you.” That’s what we did. We went out. Andrew and I were door-knocking on foreclosures in the first couple of deals. The first one was crazy about how much time we spent on it. We only netted $2,000 from it, but that was our first deal. We were knocking on foreclosures. We found a lady who needed to sell her property because she was going through a divorce. We were able to step in, help her out, and help her move on to something else. We made a $2,000 fee off of it.

It’s funny how the ones you work the hardest on seem to be the ones you make the less money, right? That’s the trend of this business. That’s near and dear to my heart because I started door-knocking pre-foreclosures. I did that for almost five years. I started door-knocking, then I built the door-knocking team and that’s all I did was pre-foreclosure. Let’s hit on that for a minute because I could be wrong.

I have no crystal ball, but I have a feeling that we’re going to be in for quite a few foreclosures here in the future. It’s a great way to start for somebody especially doesn’t have a lot of money, then get a list. What were some of the things that you felt you did right? Let’s talk about rights and wrongs. What were some of the things you felt like you did well when it came to door-knocking? What were some of the blessings that if you had to do it again, you’d make sure you implemented these things right out the gate?

One of the things that we did right was we bought a $20 list. It was just a pre-closure list for our county. We live in a big county, Harris County in Houston, so the list is pretty long, but we were both working full-time corporate jobs while we were doing this and so we had limited time. The one thing that we did right was looking at that data, studying that data, and sorting it. That way when we were going door-knocking, we were hitting on things that had what we perceived to be the highest level of pain, as well as the most equity potential on a deal that we could put under contract.

What were some of the mistakes?

The mistakes were that our pitch was totally off. When we went and knocked on people’s doors, we would straight up ask or tell people when they came to the door, “We know you’re going through foreclosure. We’re here to help you out.” You talk about getting the door slammed in your face quickly is open up with, “I know you’re going through the foreclosure.”

That’s one for getting the door side putting on your face for sure.

Somehow, we were still able to buy a couple of deals. It’s a terrible way to go about doing that. That’s not how you want to do it. When you go and you talk to somebody and you go door-knock them, you want to pretend that they’re not going through foreclosure. You would just want to go knock on their door, tell them that you’re buying the neighbor’s house across the street, wanting to know if they may be interested in selling their house or may know of somebody that’s interested in selling their house. It’s a way better approach.

My approach is always I said it but didn’t say it. I’d knock on the door and say, “I just came across some information that you might be struggling with your mortgage and I wanted to see if I could help you find a solution.” The key is don’t attack you’re in foreclosure because they’re going to slam the door in your face. What other mistakes did you make?

Door knocking is probably what we found to be one of the more inefficient ways if you’re trying to hit a volume of deals. It’s a cheap and easy way to get in front of people, and it’s harder to tell somebody would know when they’re at your doorstep. It’s way more efficient to take that list, plug it into a dialer, start making calls, and approach it that way. You have a way better chance of getting more houses under contract in a shorter amount of time.

 

You started door-knocking and you started getting your business going. What was next?

We ended up getting away from foreclosures after too long, and we found Cris Chico. I don’t know if you ever heard of him.

He’s a friend of mine.

We found him back in 2019 and he was talking about finding motivated sellers through Facebook. We signed up for his course at that time. If we would’ve known what we know now back then, it was crazy. We were getting motivated seller leads in Houston for $11 or $12 a pop. This was before Facebook came out with all these restrictions and regulations around how you can run ads. It helped our business launch off to where we could do a couple of deals a month.

You started doing Facebook marketing. Has that been the primary marketing channel you’ve used so far or have you done some others?

Facebook changed how they allow people to market and it took away a lot of the power that we were able to use when it came to demographics and focusing on whom we wanted our ads in front of. We got away from that because the dollar per lead drove up high. Now what we focus on is cold calling. We’ve got a whole cold-calling team that we’ve built out in Latin America and the Philippines and then we also focus on things like PPC, Pay-Per-Click ads on Google. We run some TV ads. We’re starting to get into radio. It’s a whole barrage of marketing that’s helping us drive our business now.

If you had to pick one marketing channel that was your best ROI, which one would that be?

It’s hard to say the best ROI, but we like cold calling and a mixture of the PPC with TV because they play off each other.

PPC and TV are different leads than cold calling. Cold calling, you’re outbounding, and PPC and TV, they’re inbounding you. I’m assuming you have some good follow-up processes in place for your marketing.

We do. We’ve got lead managers. One thing that has changed our business is that we implemented it. Instead of our acquisitions team getting all the leads coming from our cold calling team and straight from our TV ads or PPC ads, now we have lead managers who filled all the leads. They also follow up with people. Their whole job is to filter and make sure that the right lead gets to the right acquisitions person and if those people aren’t ready and able to sell yet, then they don’t pass it on to the acquisitions person.

Having lead managers instead of an acquisitions team to get all the leads can change the business. Click To Tweet

That’s a fundamental mistake that a lot of companies make. We talk about marketing as a channel and whatever channel you’re going to use, all of them work if they’re implemented properly. It’s usually what happens after the phone rings and a lot of companies will send all of the noise right to the acquisitions rep. Fundamentally, it throttles the acquisitions rep back. I’m assuming you agree with that. It throttles them back and they’re not fully focused on what they’re supposed to do, which is close. Having that lead manager fundamentally is very important. That’s great advice that you guys did that for sure.

We feel like that’s probably one of the most important parts of our acquisitions team, to be frank.

Let’s break that down. What does your team look like right now?

Right now, we’ve got two lead managers. We’ve got one acquisitions person, one dispo person, and one transaction coordinator.

How many of those are virtual and how many of them are in office?

That’s all of our in-office people.

Your cold calling is virtual. It’s outsourced.

Correct. We’ve got people over in the Philippines and Latin America doing our cold calling.

You guys are big buy-and-holds. How much of your business is buy-and-hold and how much is wholesale, and anything else?

You were talking about ROI for marketing channels. We were looking at this. Most of our buy-and-hold stuff comes through our cold call channels. For whatever reason, they’re usually older sellers and older properties, have a little bit more equity and are not as financially distressed. On average, we’re trying to grow between 2 and 4 properties a month that we’ll keep out of what we put under contract. Being closer to the seller and to the lead source gives us the opportunity to look at those deals and everything, see which ones fit in our niche and our portfolio of what we’re targeting for those, and then the rest will just wholesale out.

 

If you’re an organization trying to fix and flip or wholesale, buy-and-hold does impede the cashflow. You’re not wholesaling it for an assignment fee or flipping it for a profit. In some cases, you’re having to invest a little money into those. I have two questions. One is, do you guys have to practice keeping yourselves in check in the discipline of buy-and-hold versus taking the cash now? What are you doing to make sure that you’re being disciplined about that? It makes for lean times. It’s a discipline. What are you guys fundamentally doing that you know for sure that’s what you want? Is it a struggle? What does that look like?

It’s a good partnership. It’s just honesty between us of what our goals are and what we’re willing to sacrifice to shorten for the long game. There are deals that we end up wholesaling, passing on, or doing something with just to take that cash pop that we would’ve preferred to keep or something like that. You have to make those decisions and it is that discipline that says, “We need this cash now to keep feeding the marketing and that side of the business versus the buy-and-hold stuff.”

We do have good private lender partners whom we’ve worked with since the beginning. We’re able to structure those deals and that funding to where we aren’t as reliant on cash generated by our wholesale business as maybe we would on some other different types of hard lending products or conventional lending. That does help us and those terms are very favorable and we’ve got great partners in that, so that helps us tremendously.

For us, it’s like we have to convince ourselves to sell it instead of why we should keep it. It’s the other way for us.

We have to convince ourselves to sell the property instead of why we should keep it. Click To Tweet

With that said, do you have a model for what you keep? Is there a certain type of buy box that you have? What does that look like?

For sure. For when it comes to the houses that we keep, we’re looking for a certain specific area within Houston. Most of our houses are in the Northeast part of Houston. It’s the working-class area of Houston. The rental rates are still high compared to the actual values of the homes, or at least they were. Now the values of homes are just skyrocketing. That was the one thing. When we buy a rental property, we go in and we want to do the plumbing and electrical. We want to do all new mechanicals. We don’t have to worry about maintenance further down the road or at least for the next few years. We’re usually buying houses that are 1970s or somewhere in there. They have enough equity to where we can afford to go in and do all these rehabs of the mechanicals to make it work for us long-term.

Under 2,000 square feet, 4-bedroom, and 2-bath, typical family size, and then brick-on foundation. Everything else, the roof and plumbing, we will go in and redo all that. We’ve made the mistake of not doing rehabs the right way or buying a house on block, beam, and stuff. We have learned from those lessons and realized that our buy box is a certain region and a very certain construction site.

A handful of years ago, there was a hurricane that flooded Houston and took out a lot of investors. Is that something that concerns you at all? What do you do to mitigate your business and protect yourselves? A market downturn is what everybody’s talking about now, but you have environmental impact issues that have affected your market as well. What are some of the things you do to keep your business healthy and mitigate some of those things just in case?

Flood insurance in Houston is a real thing. In Houston, you want to have flood insurance in certain areas. We look at a lot of patterns when we buy a house, whether or not we’re going to put flood insurance on a house. In some parts of Houston, it’s not necessary, but in other parts, it’s 100% necessary. Flood insurance is the first thing. Keeping a healthy business, keeping a very cash-heavy or cash-positive business is very important for us. It’s never like we’re just barely scraping by to ever meet marketing needs, meet payroll or anything like that.

We run a very cash-heavy business. We’re never putting ourselves in a bad spot, but also understanding where to buy and keep houses in Houston is another big thing. It’s very neighborhood by neighborhood. The longer you’re here, the better you’ll know the city. Being able to know where to keep houses and where not to keep houses is a big part of how we can mitigate environmental risk.

We keep heavy cash reserves and then flood maps. If we have a certain region or a certain neighborhood where we’ve got maybe 4 or 5 houses, we’ll put flood insurance on 3 of those knowing that if a major event happens, we’ll exit out of two of them and then recover on the other ones, and then just start to rebuild from there. It’s protecting your baseline, knowing that you are going to have some loss in the process. You can’t overinsure yourself, and you can’t underinsure yourself.

It’s a balance for sure. It was just something that popped into my head when we were talking about that particular market. I remember very vividly the conversations I was having around the floods. Keep it interesting. What are some of the struggles you’re having in your business right now? Is there anything you’re struggling with at this moment that you are trying to work through?

I go with people. People are always a struggle. Whenever you start building a team out, people are going to have their own decisions that they make. They have their own way of thinking and justifying things. Having to work around that and understand who the people are that work with you and making sure that they’re in the right seat, I feel like that’s always a struggle in every business. Making sure that you’ve got the right people in the right seat, and that you’re managing them and you’re giving them the right incentives to where they feel like they’re part of a culture that they want to be part.

Make sure you get the right people in the right seat and that you're managing and giving them the right incentives where they feel like they're part of a culture they want to be a part of. Click To Tweet

I will agree. I always say everything in this business is easy or at least it’s not complicated. It’s the people that complicate it. The people factor is the hardest part of this business without a doubt. Any advice you’d give to somebody just starting out as a real estate investor? If you were starting all over again now, what would you tell your past self?

The one thing that we talk about all the time is that we do run a very conservative P&L. The one thing that we wished we had invested in more and not been so conservative on cash is paying for education, going to the right groups, getting in touch with the right people, showing up to those networks, learning faster from other people, and getting the training that we need. We’ve done that in the later years and we’re not afraid to spend money on sales classes, masterminds, or anything, but we wish we had done stuff like that a lot sooner.

That’s great advice. Surround yourself with the right people. Make sure that you’re finding that short path to success is extremely important. Any last words? Anything I didn’t ask that you want to hit on?

Just commit. Commitment is a big part of this business. If you’re on the fence thinking about getting into this business, don’t dip your toe in the water. If you’re going to do it, make the decision that you’re going to do it and make the sacrifices to make it work because that’s what it takes. It’s not a complicated business. It’s very simple but it is a hard business. It’s a grind. It’s not something that you can just halfway do. We see a lot of people who are dip their toes in it and then wonder why they don’t succeed. You’ve got to fully commit and burn the ships behind you and leave yourself no choice but to succeed.

You have to fully commit, burn the ships behind you, and leave yourself no choice but to succeed. Click To Tweet

Burn the boats. I agree 100%. If you have gotten value from this show, make sure that you are liking and subscribing. Make sure that you’re sharing it out there with the real estate community or anybody you know who might get value from it. Follow me @TheRealDonCosta on Instagram. We talked about the masterminding community in the beginning of this. We also are doing some amazing things with events and some mentoring. Go to Fliptalk.com and just check out what we have going on and follow this show. Gentlemen, thank you so much for being with me now. I appreciate your time.

Thanks.

 

Important Links

• BeInThisRoom.com
• Cris Chico
• @TheRealDonCosta – Instagram
• Fliptalk.com/grow
• BestDataNow.com

 

About J.R. Reed

Experienced Business and Sales Professional with a long history of working in Saas, and Tech. Skilled in Leadership, Software Solutions, Business Process Re-Engineering, Management Consulting, Sales Operations, and Sales Management. Experinced Saas professional with a Bachelor of Business Administration (BBA) focused in Entrepreneurship, Finance from University of Houston, C.T. Bauer College of Business.

 

About Andrew Jobe

Andrew, Is a Houston native. He was born and raised here in Houston and cares deeply about Houston as a city. Andrew attended University of Houston for his undergrad and Rice University for his MBA.