Latest / Real Investor Radio Podcast / Ep 64 | Market Mechanics and Timing: Strategic Moves in Real Estate with Pat Flynn

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Ep 64 | Market Mechanics and Timing: Strategic Moves in Real Estate with Pat Flynn · Real Investor Radio Podcast

• Craig Fuhr (00:00) Hey, welcome back to Real Investor Radio. I'm Craig Fuhrer joined again by Jack Pavere. Jack, good to see you. How are you today, Jack BeVier (00:07) Absolutely man. Great to see you. I'm an excellent feeling good this morning. How about you? Craig Fuhr (00:11) I am feeling better than usual for an old guy. Must've got a good night's sleep last night. Hey man, I know you just got back from a really cool trip to Japan. Tell us how things are looking in Japan and what interesting takeaways you had. Was that your first time there? Jack BeVier (00:30) Yeah, yeah, it was great. It wasn't my first time to Asia, but it was my first time to Japan. It's like a know, bucket list trip that bit of my my wife Jamie and my bucket list for a long time. So we had a wonderful time eight fantastic. I definitely like pushed the edges of her culinary palette quite a few times. But but eight really well. The beef was awesome. I think Craig Fuhr (00:49) Yeah. It's all about texture with the Japanese Jack. That's not, that's yeah. Jack BeVier (00:56) Yeah, yeah, yeah, exactly. I think I ate more fish over the past two weeks than I ever have. So my doctor was very pleased and. Craig Fuhr (01:05) What was your takeaway? What was like the big takeaway from the culture there, Jack? Jack BeVier (01:09) man, it's so different. It's wow. It's really, it's really interestingly different. Like it's very, very hierarchical manners are very important. Everyone's well behaved, soft spoken. you know, it's, it's really interesting to visit a monoculture, especially coming from the United States, which is, you know, such a melting pot. And we've got like, you know, such conflict tolerance and we're loud and we're brash. And then you go to somewhere like, you know, you go to somewhere like Copenhagen or you go to somewhere like Tokyo and like everything's the same. Craig Fuhr (01:23) Mm Jack BeVier (01:39) Like I'd be, we'd get up in the morning. I'd go for a run and everyone's commuting to the offices and everyone, you know, generally speaking back at the office there. And it is just a sea of black pants, white shirt, no light blue shirts, no bluish pants, no charcoal pants. is black pants, white shirt. And, I don't know. It's just, so it's, it's just very different. Like it really permeates through all of society. I'd be standing, I'd be standing crossing a road and there will be 75 people on either side of the road, but the stopped, but the light says, you know, don't walk, no cars. You look left, you look right. There's no cars for a mile in either direction. And 150 people just stand there and look at each other in absolute silence and wait until the sign says go. And then we cross the street. So, you can imagine how that just like permeates through like all of. you know, culture and business too. So yeah, different place, fun to experience. Craig Fuhr (02:39) Yeah, that's interesting. So we're about 40 days from an exciting election, Jack. Interesting economic times had the big Fed rate cut a couple of weeks ago, or I'm sorry, September 18th. And you and I did a quick hit on that a couple of days ago that I'm sure is being posted on the Real Investor Radio website, podcast sites around Instagram, places like that you can find us on. But let's give folks a 30 second take and Pat, we'll introduce you in a second. You can feel free to jump in here. We always like to do a little quick hit on a story or two right before we jump into the guest. so Jack, you know, it wasn't the 25 bips cut. was the 50 bips cut. Give us, give us a quick take on what real estate investors, especially those who are refining DSCR right now should expect, you know, in the coming weeks or perhaps the coming months, if anything. Jack BeVier (03:39) Yeah, I think a lot of folks were expecting or may have been perceiving that when the Fed starts to drop rates, mortgage rates will be coming down with it. And I think that actually happened about six weeks ago when people anticipated the Fed dropping rates, you know, got priced in the mortgage back then. And so the past six weeks have been very busy from a DSCR refi perspective and conventional resi consumer mortgage perspective as well. Consumer residential consumer mortgage mortgage lending companies are starting to hire operations folks again as well. I think that we've still seen though a lot of slowness in terms of showings. So I don't think that it's been enough, at least my perspective is that it hasn't really been enough to inspire those that are on the sidelines to come off of the sidelines. And so it's still kind of soft right now on the out sale. for flipping to homeowners. And so we're seeing a lot of folks fall back on renting their properties, getting a chunk of their cash back through a refi and just living to see another day, which I think is probably a wise decision in the face of like uncertain consumer demand for houses. so, we're, you know, and we're walking into both an election season and the winter, right? So. I think the next six months are going to be interesting ones from a just making it through perspective. That's kind how I'm thinking about the winter right now. Craig Fuhr (05:15) Pat, any thoughts? Pat Flynn (05:17) I couldn't agree more with Jack. it's all the same exact thing down, down here. maybe, maybe later on the call, but we saw, we saw what happened with a mortgage rates six weeks ago. we saw that already. so you're not going to have a material effect like at the time of the fed rate cut. My hope was, buyer sentiment. Craig Fuhr (05:20) We don't like us. We need you to be way more confrontational, Pat, really. Pat Flynn (05:43) changed and people got a little more excited now that we have this cutting cycle. But I'll echo the same thing Jack said is the same thing we're seeing down here. We don't have a bunch of lingering inventory because we price stuff well and we're doing good renovations. And like I said, we price aggressively and buyers that are making offers, you know, we're doing concessions and stuff like that. So we don't have a bunch of inventory sitting, but flippers in Jacksonville, Northeast Florida. just getting slaughtered right now because we've been so spoiled over the past eight years. And if you look at the market data, it doesn't look like we had this massive price drop, but prices really have dropped and they've dropped by longer time on market, you know, 3 % calicellar concessions. You having to make a bunch more repairs. And like Jack said, extremely soft right now, where if we're getting a buyer in a house and we're under contract, like I want to make sure that closes and I'm tiptoeing to the closing table rather than a year ago where if something got tied up, I knew it was done. Craig Fuhr (06:45) Yeah. Or you were like, hey, if this buyer drops out, I'll price it up another 10 grand and get five more offers. Pat Flynn (06:54) Right. They ask for repairs and we're just, yeah, no, we're not doing anything. And then they say, okay, we're paying for that a little bit right now. Craig Fuhr (07:06) Pat, we're excited to have you on the show and hear all your thoughts. know Jack and you have had a history together. so Jack, why don't you go ahead and introduce Pat and we'll jump right into the conversation. Jack BeVier (07:17) Yeah, I was super excited to have Pat join us. I'm sure I say some, you know, pleasantries when every guest comes on, but in all seriousness, Pat's one of my favorite people to hang out with and talk to about business. we've, I've gotten to know him through the real investor round table mastermind that we put on and Pat's currently he passed on the Jacksonville market. He is his company's flight builders and He was formerly with a company called Yellowbird down in Jacksonville. Very, very active, like humongous player in the wholesale flipping and rental markets down there. And so we want to talk about kind of the, we're going to go through some of the transition of those businesses where he sees opportunity right now on the building side of things. But Pat, if you wouldn't mind just kind of let us tell us a little bit about flight builders. You guys approached to the market. and what the team looks like. That would be a great place to start, I think. Pat Flynn (08:17) Sure, and yeah, I appreciate it, Jack. Everything you and Fred do with RIR is just, it's one of my favorite groups of people. And obviously, you know, a ton of respect for you and Fred and what you guys do at Dominion. I love hearing your input on everything going on economically. So thank you for everything too. Thank you for having me. So flight right now, we're at 37. We're 37 team members and that includes six VAs. And we are more specifically an infill lot residential home builder. So we'll start 180 houses this year. We don't work with homeowners directly. We work with investors and we build for ourselves. So if you and Fred owned 15 infill lots in Jacksonville, we would be the person that would build for you and you'd rent them or do whatever. So the main business model behind it was, Build to Rent was really big in Jacksonville for a while. rates screwed that up a little bit over the past couple years, but we are a build to ramp builder that builds for bigger operations and also ourselves. We're having to pivot a little bit now because our houses are going to be direct to like a home buyer, someone living in there. So we're kind of ramping up the sales team has been the focus now, but. That's basic overview of what we do. A residential single family builder that's building right now on infill lots, no communities or anything right now. Jack BeVier (10:01) So I got lots of questions about that. What did you see as the opportunity in fee building? Why fee building now? Pat Flynn (10:12) So I'm gonna talk about two opportunities they saw because fee building was kind of the secondary opportunity, but you mentioned Yellowbird. Me and Kyle were partners in Yellowbird since the end of 2016. And we were flipping out. We were basically a sales operation, as you know. So we had a strong 15 person sales team at our peak. We were spending a little over a half a million dollars a month on marketing and we were marketing direct to seller for... not really lots, but we got lots sometimes, but we were marketing for houses, right? For flip houses. And there is another local builder in my market that was during that time period in 2021, 2022, when everything was really humming, he was buying up infill lots. And we were buying infill lots too, but not at that scale. And I watched him buy these infill lots for $30 ,000. $40 ,000 and just hold them on his balance sheet. So he had this massive list of 150 infill lots that he was gonna build a house on itself. So if you look at infill lots as basically a flip, a less risky flip, which is how I look at an infill lot because you know your exact construction costs, your exact horizontal costs, it's a new product. So you're gonna have... a premium on sales price because it's new and in a crappy market, the new stuff's gonna sell first. So I look at buying infill lots as just less risky flips. And he was the only game in town, so everything just flowed to him. He was just like, know, people were sending him lots because no one knows what to do with an infill lot. It's very difficult to build single family construction at scale for a bunch of little infill lots. Craig Fuhr (12:09) scatter site, right. Pat Flynn (12:10) different utilities and stuff on all of them. In addition, like we're having to buy these houses for 150 grand and hold them on our balance sheet. He's holding lots on his balance sheet for 30 grand. So he can hold a lot more inventory and better spreads and you know, better, more scalable business. So I just love the model. I love the idea of, because Jack, you know how painful it is to market for. an off -market flip, right? It cost us at our peak, we were paying $8 ,000 for a deal, in marketing for a deal, and it was a hell of a grind to find a house to make $25 ,000 flipping it, right? And I had this guy in my market that was just like eating up infill lots, holding them on his balance sheet for less capital, and he's got this whole tank of basically 25, $30 ,000 flips. that he can just pull off as he needs it. So that was the big opportunity was I saw him being the only game in town there and us being very good at acquisitions. And it's like, man, if we can buy houses, we can buy lots. So the way we set up the company too is we have great. investor and wholesaler relationships in town. So, and we have relationships with these hedge funds who are coming in and doing a lot of build to rent in Jacksonville. So my thought process was the fee building side of it can kind of make the business money relatively risk free. You already have these hedge fund relationships of guys doing build to rent. And at the same time you have your own lot inventory. So, my thought process was you have this fee income coming in and you can throttle the fee income versus the stuff you're doing on your own and make a very safe place to work for your team members and your leadership team, which is really what I'm all about. So I looked at it as a great balance of less risky fee income coming in on built -to -ret stuff. Plus you have this machine that can build your own stuff too, but you don't gotta go all in on either side. So that's the way we set it up. Craig Fuhr (14:30) Hey, can I ask just drill into the marketing for those who are listening and certainly Jack is no stranger to marketing and marketing budgets. And, you know, I've done quite a bit myself when I was an investor, you know, for those who are listening and they have, you know, maybe they're doing five, 10 houses a year flipping or even buying and holding. We know what a grind that can be. And we know that the cost of a lead has gone up and sort of the cost of acquisition has gone up. But how do you go from sort of, you know, you're look, if you're spending $10 ,000 a month on on your marketing budget for most people who I think are probably listening to the show, and we tend to, you know, think that we're talking to more advanced real estate investors. How do you go from 10 20 $50 ,000 a month to 500 grand a month in marketing spend? mean, that is a machine that has to be fed with a lot of deals, man. If you're making an average, you set of 25 grand on a deal. So what does that feel like and how long did it take you to scale to that? Pat Flynn (15:33) Yeah, really good question. I love whether it's a quote or just a business mindset that, you know, it's not all you, right? If you're doing really well. don't take all the credit for it. And if you're doing really bad, don't take all the credit for it. So I think, I think me and Kyle are good operators and I'm my superpower is kind of systems and processes. I'm really good with salespeople. really good with accountability. So we had that, but. We had a lot of, we had a lot of wind behind us during that time period. If you guys remember, that's not what we looked like before COVID. Before COVID we were probably 60 and that's more of a normalized market, right? 2017, 18, 19. That was more of like the grinder time period. We were probably at 70, 80 grand in marketing then. And when things kicked off post COVID and hedge funds went out of control, and the market in general just went out of control. We put ourselves in a really good spot because I had my core of five sales guys. And honestly, through connections and RIR and other groups I was in, we were ready to scale at that point. So just it happened one bite at a time, slowly bringing on salespeople. Our margins went up, up and up on the hedge fund stuff. We were... taking a lot of risk, buying stuff early, but then all that stuff sold at great margins. So at that time, it was just a matter of bringing on new salespeople, training them up, making sure the phone got answered. And we watched our marketing numbers of cost per deal, return per marketing source. And we saw those numbers hold as we spent 15 % more every single month. And one other metric we started tracking was We figured there'd be a point in direct mail spend, a point of diminishing returns. So we were watching our point of diminishing returns on every single marketing source and we got really good at that. We knew that there was a sweet spot of direct mail spend to where we could do 22 deals off it. And if we wanted to do 28 deals, it would cost us a lot more money and not necessarily be as effective. So we had it honed in to we had our sweet spot on every single marketing spend between Google ads, the cold callers, everything. So our point of diminishing returns when we were really humming on every single marketing source, we were doing about 42, we were buying about between 40 and 45 houses a month. And we decided that that was about the max that you could do in our market. And then we... then we, at that point, we moved to Orlando. But it happened very naturally because a lot of tailwinds with these hedge funds and the numbers we were able to buy stuff for. it just, slow growth over time, watching your KPIs in your numbers and making sure, hey, if you're gonna spend 15 % more on marketing, you're gonna have some operational stress. Right? Between answering the phones, transaction coordinating, that sort of thing. You're going to need new marketing people to come in. So that's all it was. And with flight, I plan on doing the same thing over again. It's just not going to be, we don't have these huge tailwinds anymore. So it's just more of a grind through it, but it's the same concept of, as you do more volume, you need more people. Your systems are going to be strained and just slowly. think from first principles and identify problems and solve them. That's all. Craig Fuhr (19:23) So given what you know about the business back then, Pat, if you were to do it all again today in that same business, and you know, we know you pivoted, but in that same business, you were, you know, speaking to the real estate investors that are listening today. How would you, what would you do? What would your marketing look like today? If you were back in that same business, you know, sort of that's 2016 to 2015 to like 17 timeframe, but now you're at 2024. Pat Flynn (19:45) So we are. I'll say two things about that is Yellowbird, at Yellowbird we took advantage of an opportunity. I know there's some groups out in California that still do this at scale, but the wholesale flip market is so fickle. It's never something I would try to, you know, we had 55 people at our max and I take those people's jobs and the leadership we have very, very seriously and When things go, you know, when the Fed bumps rates 50 bips in June of 2022 and the music kind of stops, that can put you in a bad spot. It is hard to pivot to replace that sort of income. So I don't like the scalability of that business model in general. I like being lean as far as a flipping operation, which is what we've done now. Don't want to speak for Jack, I feel I know their their acquisitions operation and they keep it kind of lean as well What we have going now is I have myself My up my my executive assistant was fantastic maybe 20 % of her time and we have two salespeople We're spending about $12 ,000 a month and we adjust it all the time and we're incredibly lean They're probably a little more infill lot focused than houses, but it's probably 50 -50. We'll do about 60 deals this year, fix and flips and wholesales, and they'll buy another, I think 50 or so lots. Craig Fuhr (21:16) course. So what's working for you from a fix and flip standpoint, you know, in terms of marketing? Is it still the direct mail or what are you doing? Pat Flynn (21:40) Yep, we're using Google ads mostly now. So that $12 ,000, probably 70 % Google ads and our SEO and stuff, 30 % direct mail. Direct mail hasn't been great. You have to really commit to direct mail. I'm just, I'm not there yet. What really works for us now, and I think for this time period or people getting started, or especially someone doing five to 10 deals a year is... Once again, we've been spoiled for the past seven, eight years at Yellowbird. All we did was spend more money and we got more deals. That's not the environment now. I think now is the time to do a mix of very strategic spend on marketing, but also grind. at the same time. So a lot of our deals are coming from that grind. And by grind, I mean the foreclosure auction stuff, going to auction, getting with those people beforehand. We're hammering tax deed. We're making sure we're doing the fundamentals. So we're probably of 12 grand in marketing spend, we're probably generating 25 or 20 or so leads a week. We make sure that every single one of those leads, the phone is answered the right way. They're followed up with, we're not missing anything. So we're very strategic on our spend. We're doing the fundamentals of a super clean CRM, making sure everyone is getting hit. And we're also doing grinder stuff too, where a lot of our stuff is coming from. Hayden's kind of new to the business and we brought him on. Craig Fuhr (23:06) Great input. Pat Flynn (23:08) to hammer the phones and foreclosures and stuff. So I think that's the strategy now. A small, lean team, not a lot of overhead, do the grinder work, hammer on doors, but also there are places where you can strategically spend money in marketing and I think you can make a lot of money doing that right now. But I think that's the plan. Craig Fuhr (23:27) Jack, can you add anything to that from the Dominion side? Jack BeVier (23:30) What? Well, a quick question for you. What's what CRM did you guys, are you guys in right now? Yeah. and is that what you were on at the bigger volumes as well back in the day? Pat Flynn (23:37) HubSpot is just simple and intuitive. No, we were in Salesforce using the left main plugin on top of Salesforce for that. Jack BeVier (23:51) Did you think, but you thought that for the extra value that you got out of it, it just wasn't worth the squeeze? HubSpot was like leaner and meaner. Pat Flynn (23:59) HubSpot is cheaper. It's easy to do stuff in. And by do stuff, mean like change things. Like Salesforce is complicated. I think Salesforce is right. We use Salesforce for flight. But my attention level in the We Buy Houses business has gone down just because I my time spent in other places. And HubSpot is just a great, easy tool. knowing that I will never scale this. I'm never going to scale this business to where Yellowbird was ever again. So it serves its purpose as an out of the box CRM at this level. Jack BeVier (24:39) Like one of the things that, I've, excuse me, one of the things that I've always been really impressed with is, you know, having met you guys prior to COVID and that big run up in that period of time, you guys, was like you and Kyle were animals, right? And it was like, dude, those guys are answering phones 24 seven networking with all the wholesalers, coach, you know, mentoring and coaching their sales team. and, you guys were doing a tremendous amount of volume per capita back then. But you also, but at the same time you guys had a like, had a respect for the KPIs and were measuring the throughput and knew what your cost of acquisition of a customer was, you know, frankly, when that was like not that common. you, but you had all that stuff in place so that when an opportunity, when the opportunity started increasing, you guys were able to see it in your numbers and not just be like, Hey, I think it's getting easier. Maybe we should spend a little bit more. You actually were able to quantify the opportunity as it increased and just leaned into it and leaned into it and leaned into it. And you knew, and you weren't even taking any risks, right? You just knew this was a profitable thing to do. Like you just said, like you even knew where the point of diminishing returns was. I think that's just like exceptional from an operator perspective. I don't think there's, you know. I don't think there's that many operators that can speak to their numbers on that level of actually paying attention to them and even knowing where the point of diminishing returns is in their spend. But that led you to have the confidence to lean in, to ramp the budget up to a half a million dollars in a market that there was no secret that the hedge funds were in Jacksonville. That should have been a very competitive situation. You shouldn't have been able to make... Pat Flynn (26:27) Certainly not. The secret was out. Jack BeVier (26:34) quote unquote, shouldn't have been able to make outsized returns in a market that wasn't off, you know, off the radar. But you guys were the ones who knew that you were making the right decision. you might, what I gathered was that you leaned in harder, but first, you you leaned in earlier and harder than anybody else did in your market. And so you guys were just like, became the man when the getting was the best. And I was just like, man, they just nailed that trade. Like, That was just so good. Like couldn't, couldn't have been executed better. Like it was like a textbook for like how you take advantage of a market opportunity in real estate, which happens, right? Like happens every, every five, seven years, something will come along and there's a pivot for us. was, it was DSCR in 20 late 2020 by January, 2021. I had a meeting with, with my partner and our head of operations, Andy. on the lending side of things. And I was like, we just did this much volume in DSCR. We made this much money off of it. And I was like, you know, here's, built out the model for like, Hey, if we spend this much, here's our cost of acquisition of a deal. Here's the people we need to hire in order to close alone. And I was like, it costs, I was, quantified it. was like, it costs this much dollars for us not to hire, you know, 10 people a month. and we went from. And we went from $20 million of originations to $100 million of originations in like an eight month period. Now that was not a smooth process, right? That was a very bumpy, brutal, like it was not clean, but. But I knew that like, but I knew that we were going to make a lot of money doing it. You know, like it was just like, and I think, and we made it and we made a lot of money doing that. and so like just having those KPIs in place, right? Like. Pat Flynn (28:12) you Craig Fuhr (28:17) Hard to model for that. Jack BeVier (28:32) people are like, yeah, it's really important from an X and they think about it as like an expense management tool. And I'm like, no, no, no, it's not an expense management tool. It's an opportunity quantification tool so that when, when the get starts to get a little bit better, you know that you should, you know, you have total confidence in cutting bigger and bigger and bigger checks on marketing and hiring people because you, you know, because you know that these are, you know, high return investments. So it's like, think that's the bigger takeaway for, know, quote unquote, knowing your numbers and KPIs. People think about it as an expense management thing and, you know, it's an accounting exercise. But I'm like, no, this is something that like the revenue side of the shop is that's where you get the really big return on that investment. Pat Flynn (29:21) I couldn't agree more. I mean, it takes the emotion out of that. Decision right Jack. mean half million dollars a month seems like a lot of money someone's spending 10 grand a month to go to 20 or 30 grand a month that probably seems like a lot of money to them so their emotions and their natural fear of of loss are gonna stop them from doing that but if you can eliminate that fear of loss and you can eliminate the motions out of that decision by Quantifying it and knowing for a fact what your numbers are. That's you're exactly right. That's that's you know, the only way to grow. Jack BeVier (29:57) So you guys were also, you guys, I want to switch back to flight in a second, but talking about Yellowbird and that period of time, you guys were also had a big rental portfolio. You guys had been acquiring for years and years and years, even before you joined the firm. Talk about, if you could talk about that experience for owning, what kind of real estate you guys owned, the operations behind that, you guys decided to exit in large part, I think that portfolio. Pat Flynn (30:12) Yeah. Jack BeVier (30:27) What was your thinking around that decision? Talk us through that. Pat Flynn (30:32) Yeah, so like you said, Jack, Kyle and Steve were acquiring before I got involved in them. And the three of us met in 2016. And that's when we started kind of continuing to buy for that portfolio. yeah, it's looking back on it. And Kyle and Steve will be able to speak to it better. But hindsight's always 20 -20 on this stuff. The numbers we were buying stuff for back then, yes, you wish you did 10 times more, right? But as far as the operation, you guys mentioned this a lot at RIR, is the power of managing these things yourself and maintaining the control of it, especially at the volume we were at. We had about 1 ,200 houses or so. Very hard if you were going to manage 1 ,200 C -class houses to hand that work off to somebody else. If not impossible to do that. A lot of our houses were in rougher areas. This was face to face leasing houses. This was not using Renly to go there and do your own showing. and all the stuff you see at the SFR conference, all that technology. This was not that, right? Jack BeVier (32:01) Yeah, Getting your yuppie millennial tenant to enter their work order on an app on their phone. Like, dude, we're still, I got flip phone. I got a lot of flip phones still. they got a lot of cricket wireless still in the portfolio. Pat Flynn (32:08) Exactly. Yeah. Craig Fuhr (32:16) Got to my burner. Pat Flynn (32:16) I mean, you guys know, yeah, you guys certainly know because yours, I mean, I've seen your portfolio in Jackson or in Baltimore as well, is it is face -to -face grinder management. And as a group, you know, Kyle and Steve may have different opinions, but we decided that that was not an asset class that we wanted to own long term. So we knew the exit was there. We knew we were gonna do that. It had been kind of happening for a couple of years prior and then finally in 2021, we executed on it. A lot of it was the operational... needs of property management for a portfolio like that. And no one being the guy that's gonna take it and run with it and make it great. I feel like you guys in Baltimore, have great operational setup for your property management. Ours was more, I'm gonna say a little bit more of an asset appreciation play. We were buying this stuff so cheap that you can screw some stuff up in construction, you can screw some stuff up in property management and still have a ton of equity in the house. But that was the play. It was an appreciation play. It was never a play for me anyway to hold them super long -term. So the exit, we got super lucky with timing. And it was just where me and Kyle and Steve were at the time with operationally with that property management and stuff. It just couldn't have worked out better. And it was the right play for us at the time. And I know that was a little bit of a roundabout answer, but we weren't set up to hold them forever. And it's not an asset class that we wanted to be involved in forever. Jack BeVier (34:07) So this was just stuff that you had tucked away that it was either tenant occupied or you did a little bit of work and you leased it. you were tucking away off balance sheet equity over the years through the other flipping and wholesaling activities. like, we keep, you know, each month we keep whatever, you're probably keeping a lot to get up to 1200. But just instead of flipping everything, instead of creating taxable income off of every acquisition, were. Pat Flynn (34:19) Yes. Jack BeVier (34:36) buying stuff and talking away that off balance sheet equity. What was the sale process like? Like did. So did you like, yeah, did you hire a broker and widely market this or did you just call the guys that you were selling houses to and said, Hey, we've got a bunch. Do you want to buy it? Craig Fuhr (34:43) I was just wondering the same thing. Pat Flynn (34:53) No, was in Steve, Steve ran the entire sales process, but Steve had great relationships with Roofstock and had talked to them for a while and Roofstock ended up marketing it. A couple, we had. A handful of offers come in and ended up picking one group in the end. Predium ended up buying it and due diligence was during that time period, things were pretty crazy. Due diligence was, they did a good job, you know, trying to get to as many houses as they could, but due diligence was super smooth. I took a couple of Predium inspectors, Steve took a couple, Kyle took a couple, and we spent a couple of weeks driving around. Hitting houses, probably hit, can't remember, they probably hit 20 % of the portfolio that they were buying. So we saw a good amount of houses. And then. Jack BeVier (35:49) They just picked them at random basically. They were just like, we're just gonna try to see a random set of the stuff. Pat Flynn (35:55) I don't know if it was completely random. There were probably some that were on the list they wanted to see, but they had the list of stuff they wanted to look at. And we just divided it up. And honestly, I want to say DD was only two or three weeks. So it was a really smooth process. Nothing but great things to say about Predium and their organization and the way they conducted themselves during it. But it was also fantastic time, right? This is October 20, 2021. It was very fun time here in real estate. Jack BeVier (36:24) kinda nailed it. Yeah, you kinda nailed it. Craig Fuhr (36:25) Couldn't have asked for a better time. Pat Flynn (36:29) Yeah, I give Steve a lot of credit for that. know, Steve had the work that Steve put in beforehand to prep this thing and turn these houses and make sure there wasn't a lot of lingering maintenance issues and make sure everything was tight. He really did an incredible job. Jack BeVier (36:50) Did, was it like letter of intent, signed the letter of intent, negotiate the purchase and sale. Then you had a three week inspection period and closing a couple of weeks after. Pat Flynn (37:01) That was about what it was. Yeah. Craig Fuhr (37:02) Wow. For all 1200. Jack BeVier (37:03) Okay. Pat Flynn (37:05) No, this was, we still own, me, Kyle and Steve still own about 250 of them. So you end up keeping like the worst of the worst, small square footage, like stuff that didn't fit their box and the best of the best, stuff that's really high end that also didn't fit their box and didn't hit their numbers. So we ended up with this barbell. portfolio, as well as a handful of stuff that like you said, Jack, during, things were really crazy and we're selling a lot of funds, we kept, we kept a different portfolio just to, you know, know, for tax reasons, to take some of the best deals and just hold them for a little bit. So we still have that portfolio as well. But that's what we're left with. So I think we ended up selling like 750 or 800 or something like that. Jack BeVier (37:54) Dude, what was? Who did title? mean, a thousand titles. Pat Flynn (38:03) Yeah, I'm pretty sure Dwayne did all of it. We have a really good friend, our title attorney down here that does most of our stuff. think Dwayne did all the title work. Jack BeVier (38:14) Bigger firm like they were he had he had enough of a team that that was like all they worked on for a month basically Pat Flynn (38:21) I'm pretty sure that's what happened. And if I'm misspeaking, know, I apologize. Steve, is a few years ago and Steve really ran quarterback on this just because there was a lot of other stuff going on at the time. But I'm pretty sure Dwayne took care of all of it. Craig Fuhr (38:35) Yeah, I'm thinking Jack, I'm thinking of like a few of the borrowers that I deal with and sort of, you know, 150 houses over the last few years. We talked to Sean Mulhall a few weeks ago or a few months ago on, on the podcast and sort of the, the capital that was needed to go from, you know, zero to 1200 houses. And how long did it take you guys to assemble, to assemble the portfolio or to get that 1200 houses? Jack BeVier (38:36) That's impressive. Pat Flynn (39:04) Pretty sure Kyle and Steve started buying like 2011 maybe or 2012. And it was, you know, we're talking back then, we're talking five, $6 ,000 houses that needed 18 grand worth of work. And then there was a big, yeah, it was a big acquisition in 2018 of a portfolio. Craig Fuhr (39:10) Okay, so. yep. Jack BeVier (39:21) in Jacksonville. Pat Flynn (39:29) and I can't even remember the name of it, but it was a group in the northeast. But we acquired another 300 houses in 2018. So that was like the final piece. And then from 2016 to 2021, when I was there, you're probably talking 250 or so one -off houses between just flipping and little packages we bought. So the whole thing from start to finish, knowing that you have a 300 house bump in there. think 2011 to 2020. So maybe nine years of acquisitions with one, nine years of one -off acquisitions with that one big 300 chunk in there as well. Craig Fuhr (40:20) How are you guys financing most of that? Pat Flynn (40:22) local banks. know, local banks, they had a money partner in the beginning. But yeah, just mostly local banks. Jack BeVier (40:30) What did you guys do with the, what'd you do with the money? 1031 it? Pat Flynn (40:34) there was not any sort of efficient tax strategy on the proceeds from that. Jack BeVier (40:40) Yeah, was that like because the logistics of that were too difficult or because you guys were just like, know what? Screw it. Pay the taxes. It's cap gains. Whatever. Like don't like don't even want to bother with it. Actually don't want to reinvest it. Right. And by the way, and in 2021, like, like nice, nice call. Like not a bad call. Pat Flynn (40:48) Yes. a little bit of falloff. Yeah, a little bit of both. A lot of that money went back onto the Yellowbird balance sheet at that point to fund the operation. Because like I said, we were buying 35 to 45 houses a month, packaging them up in little portfolios and disbowing them to funds. So at any time, our balance sheet was between 35 and 40 million plus another 15 million of hard money out, plus the other rental portfolios. So there was cash needs just internally for what we were doing. Jack BeVier (41:36) I think it's like interesting sometimes that like we were so tax averse as like, real estate investors, broadly speaking, right? Like work so hard to minimize their tax liability that oftentimes I think it like can blind them to the right, can blind folks to the right business decision. You know, if you're like, Hey, I think the market's overpaying for this property right now. I'm going to sell my properties. And then I'm going to 10 31 into additional real estate because then I get to avoid the taxes. Well, in the first part of that sentence, you said, Hey, I think I'm the smart money and I'm going to time the market. And then you said, and I'm the smart money and I'm going to, you know, avoid the government. But then you just reinvested right into the same market that you sold into. And I think you just like, you didn't actually achieve any diversification of time there, right? Like you. You sold at the peak, then you bought at the peak. If you believe that you're selling at the peak, then what's your thesis on not buying at the peak? If you shift asset classes and you're like, think it's great time to sell multifamily and buy into industrial or self storage, cool. But you need to be really the expert in both of those to be able to say that statement with any level of confidence. And that's a high bar, a high bar. Pat Flynn (42:51) Yeah. It was hard. Very high bar. Yeah. Jack BeVier (42:58) So like sometimes I think people were just like, yeah, just pay the, it's capital gains, just pay the damn tax. And like, you know, if you think the market's being stupid right now and it's going to be cheaper in a couple of years, like, you know, get into something safe, you know, get, get into something safe for a couple of years, pay the tax, get into something safe, be liquid, and then be able to ready to take advantage of opportunities might be a better, you know, there's a place for that. Pat Flynn (43:23) for sure. But there was conversation of moving to Puerto Rico for a couple years. Well, it got tossed around, never got executed on. But that was the extent. Jack BeVier (43:27) Yeah. Craig Fuhr (43:34) got a good friend. John hires his name. He's maybe one of the smartest tax attorneys that I've ever met moved his entire family to Puerto Rico just so he could not just just so he could pay less taxes. John hire h y re. Good guy. Pat Flynn (43:47) What's his name? Okay. Jack BeVier (43:52) Yeah, like. Pat Flynn (43:53) There's a bunch of people down there. Craig Fuhr (43:55) Yeah. Jack BeVier (43:56) The, yeah, the, bitching and moaning of, of paying taxes like, elevated state taxes, like, you know, it offends everyone's sensibilities when you see the difference between state tax rates, state income tax rates specifically, right. But then, you know, the, the logistics of that are a little bit harder to get past the wife or the spouse and seeing, you know, and kids in schools and nieces and nephews and parents. So taxes have us, the States have us locked, you know, Pat Flynn (44:15) yeah. Absolutely. Jack BeVier (44:26) If you've been there for a while, they got us pretty much locked in for a while. Craig Fuhr (44:29) So Jack, we're coming up on 45 minutes here and I was thinking you might want to tease the next episode. Do we have you for one more pad or do you have to run? Pat Flynn (44:29) And this. Bye. Craig Fuhr (44:38) Thanks. Yeah, I to transition to flight. Sorry. Jack BeVier (44:38) Sweet. So yeah, let's yeah, want to, yeah, let's jump into, to in the next episode here talking about flight. want to dig into the fee building business, what you're seeing in Jacksonville. I got lots of questions about, about build to rent versus spec sales to re to homeowners right now. So, looking forward to jumping in that on the next episode. Pat Flynn (44:50) Absolutely. So do I. We're figuring all that out. We are on the bleeding edge of that journey right now. Craig Fuhr (45:06) Well, I think we're going to we're going to title this episode, Pat Flynn market timing genius, and we'll jump. Pat Flynn (45:13) I do not think, please do not title it that. Steve deserves all the credit for that. Honestly, he really managed that self. It was in the midst of Yellowbird Humming, so I was not super involved in that process, to be honest. Craig Fuhr (45:32) gotcha. All right, well, folks, that was Real Investor Radio with Pat Flynn, Jack Bevere, myself, we hope you tune in for the next one. Great conversation. We'll see you on the next episode.