Hey everyone, it’s Mark Ferguson with Invest four more. Welcome to another episode of the Invest Four more real estate podcast. I’ve got a really cool guest on for today’s episode, someone I’ve been friends with for quite a while. He’s a real estate agent, REO broker, very active in the industry, very active in many of the groups, I met him at many conferences, Michael Burdett is on the show with Roselle Realty Services.
He kind of grew up around real estate and not only is he an agent, an REO broker but he’s also an investor himself. He does flips, he’s got rentals and a lot going on. So I want to talk to Michael, see what he’s up to, get some back history on what he’s done. It should be a great show. Michael, thank you so much for being on the show with us. How are you doing?
Man, I’m good, I cannot complain for having me man. I really appreciate it.
No, thank you for being on it. I love hearing different perspectives and talking to different people and I know you’ve got a lot going on in your world. So I’d love to hear, first off, from the beginning, I know you grew up in a real estate family but how did you get started? Did you always want to be in real estate? Did you kind of fall in to it? Were you kind of guided into it? How did you start in the business?
I got started really from a young age. My mom was a real estate agent and I used to tag along on open houses and just kind of run around the houses and just go crazy and then come high school, when they started doing REO properties, this was back in the day when you still had to do your own property preservation.
I would cut grass and do trash out and things with my little Toyota Tacoma that I had. Making 18 trips to the dump, all that kind of fun stuff and you know, when I went to college, originally I wanted to study international business but I really, you know, as I learned more about real estate, being around it, I just kind of fell in love with the idea of real estate and kind of made the decision.
When I graduated college, I went on a 10 day trip and literally got back around 12:30 in the morning and at 8:30 the morning I was in my real estate class. I got licensed in two weeks, that took eight day real estate crash course from eight to five every day. Got licensed quickly and just hit the ground running.
That’s kind of how I got started and then my first client, my mom said, “Hey, here’s a list of guys who are buying some of our REO properties, why don’t you call them?” I put together like a little script and I called them, asked them how I could take their business to the next level and start a work with investors and I started making them so much money I decided, why not get involved myself?
Cool, that’s a good idea. I’m curious, you went through the classes fast, do you remember how many credits you have to have or how many hours you have to have? Is it Maryland, right?
Yeah, in Maryland you have to have 60 credit hours in the classroom and then you have to pass the test. I did it what eight hours, nine hours a day for seven or eight days to fulfill the requirements and then I took the test later that week and I was licensed three days later.
Cool, that was fast. In Colorado, it’s 168 credit hours we have to do. Yeah, there’s no way you can do it — every state’s so different. I think most of them are around that 60 but then Texas has like 200 and there are few that are like 24. So it’s all over the place and that’s why I was wondering how you got it done so quick.
In Maryland, to be a broker like 120 or 150, you’ve got to be a licensed sales person for two years.
Yeah, I know some other states it’s like you can be a broker right away, state you have to wait, take additional training and credit hours and background checks and all kinds of crazy stuff.
Yeah, because in Colorado, to be a sales — well technically everyone’s a broker here but there’s a broker associate and then a real broker and you have to do a background check for both of them and all that but to get your managing broker’s license, you got to take a 24 hour course, pass the state test again and that’s it. That’s actually a lot easier. Well you have to have two years of experience as well, like you said.
Cool, I’m actually getting my managing broker’s license now. So I don’t have it yet but I’m in the process. I just passed my test on Friday. I was happy.
Yeah, congratulations man.
Thank you. Back to you. You know, you saw the investors you were working with, saw the money they’re making, did you start investing right away or how did you actually get into investing in real estate?
My parents, you know, kind of invested in real estate for a long time and you know, I knew that that was one of the things I did, I remember being 10, 11 years old, helping my dad hang cabinets in one of their investment properties. You know, again, I kind of had an interest in it from a young age but, you know, once I started seeing what some of this investors were making, I was like, “Hey, you know,” — I talked to my dad and said, “Hey, you want a partner? I’m finding this deals for my clients and you know, there’s plenty of deals out here for all. I could satisfy, I think I can satisfy everyone.”
My dad was my partner on probably the first four, five deals that we did and they were all successful. Just to kind of piggy back, right after college, I think about six months after college, I bought my first house, which was a foreclosure. I did a conventional renovation on it so I had, got the repairs done, paid for by the mortgage. From there, the market started to increase and I believe I sold them 2013 because I had enough equity to the point where I could sell it.
Take all of my profits, tax free since I lived in the property in the last five years and was able to use that to start investing on my own. My dads and I, I love my father, he’s the best, I wouldn’t say any bad things about him, but our investment strategies are a little different and so I kind of wanted to branch out and do my own thing.
That makes sense because I don’t know, my entire back story but my dad was an agent since ’78. So I grew up around real estate. He would flip houses once in a while, you know I’d help work on him some but I never want anything to do with real estate when I was in high school, I ran away from it so I went to school for business finance. I couldn’t find a great job and ended up working part time for him and got sucked back into the business.
Really similar because we would partner together on a lot of flips and then I bought him out of the business because we have — I’m a lot more aggressive in what I’ll be than what he is. He is a lot more conservative. On that first house you bought, I wish I would have done that with the first house I bought because I bought a retail value house and didn’t make any money on it. How much did you make on that, tax free?
I walked away with about $112.
How many years was that that you owned it?
Oh, that’s not too bad.
No, it wasn’t too bad. I think in hindsight, at the time I didn’t have the cash to really break out into investing on my own, but in hindsight I definitely would have kept the property and rented it. It was in a good area at the town house, nice town house, brick, one car garage, a little over 2,000 square feet, nice area and the values have actually continued to increase. In hindsight, I don’t regret it but it would have been nice to have been able to keep that.
Yeah, I don’t’ know, if you put me in that situation, I think I would have done the same thing just because you can take that profit tax free and do so much with it. Buying other rentals or flipping other houses but yeah, either way.
I’m sorry, go ahead?
I was going to say, either way, it’s not a bad situation to be in.
Yeah, I just think because I’ve lived in it, the three years I was there and in Maryland if you live in it two out of the last five, you can still get the tax benefit so I could have held it really up until about right now and sold it maybe netted it like $140, instead of the $112. It actually, if I had paid them more principle in the mortgage with the rent, it could have been slightly — but again, it helped me get my start and since then I’ve done I don’t know exactly how many but more than enough to substantiate selling the property.
Right. In your market, I’ve heard from different people about the market in Maryland and did it fluctuate with the housing crisis and housing bubble as much as other parts of the country?
Maryland was actually one of the most stable, if not the most stable areas in the country during that housing crisis. There were obviously certain parts of Maryland that were affected more than others for sure. Being that we’re so close to DP with all the government contracts and government employees that we have here, you know, not as many people lost their jobs, not as many people saw pay reductions or got fired.
Our area really was not as affected as other parts of the country but we did still feel the affect for sure. And foreclosures definitely, I think we were second or third in the nation for a while and foreclosure rate, that’s predominantly due to two or three counties that we have.
Being Baltimore and Prince Georgia county here in Maryland. Those areas took a huge hit but you know, DC, some of the nicer parts of Maryland and especially some of the rural areas in Maryland, they didn’t feel the effects quite as much.
Okay. I see people advertising properties and rentals and stuff in Maryland all the time because, you know, there’s some pretty good rent to value ratios there but I also see you know, 20 to $50,000 properties. What’s your take on the different rental opportunities there? I know you have some rentals in the area. I always tend to stay away from kind of the bottom of the barrel rentals but what do you think about those?
I’m actually assisting a client right now who is trying to build a 250 home, single family home portfolio of rental properties here in Maryland and they’re doing it primarily in Baltimore county. Baltimore city is kind of a crap shoot unless you’re in like the downtown harbor, really nice areas.
Baltimore city is tough but they’re targeting Baltimore County, they’re buying single family homes that are run down, really anywhere between $70 and $100,000. They’re averaging about $30 to $35,000 on the rehab because they’re buying homes with mold in the basement and you know, it’s been vandalized and doesn’t have any plumbing or HVAC systems anymore.
You got to put all that stuff back on top of the standard cosmetic rehab. But they’re renting section eight, which is a government program that we have here, I know they have it in the other parts of the country, I’m not sure if they have it out there and okay. Section eight on a four bedroom house in the county is giving you 1,500 a month guaranteed rent per 24 month term.
If you buy a house for $75,000 and you’re in it for $105 and you’re renting for 1,600 you know, that’s not bad. What my clients are doing on those homes is they’re also buying them cash, they’re fixing them up, they’re getting a lease and they’re going to their commercial lender.
70% LPV and they’re cashing it almost 100%. They’re getting an average appraisal on those property somewhere in like the 155 to 170.
Nice, using the buy rent, remodel, refinance.
It’s like what? Wash, rinse and repeat, right?
It’s kind of crazy, there’s a few properties, they’ve actually cashed out more than what they had into the properties. They literally, the way I see it, they paid themselves to have a performing rental property which is kind of cool.
Yeah, well I know Dennis Pasedo who actually I did a podcast with a few months ago and he did the same thing with one of his rentals there or he just completed his refinance and got money back after everything he had into it. He’s pretty happy about that.
Yeah, thank you, Dennis is now one of my clients, writing an offer for him today actually on a property.
It’s funny you bring him up. Yeah, he bought a property in Baltimore country. I’m sure he probably ran you through the numbers of the podcast but you know, it’s a pretty good performing rentals. I want to say he got $1,600 a month or $1,595 a month for a one level, I think it’s a two bedroom rambler.
That’s market rent, that’s not section eight. We vetted the people for him, ran their credit scores, background, everything checked out fine. From my last conversation with him things are working out pretty well. Then I know that he’s bought a couple of other rental properties, he’s doing well as well.
Yup, no, he’s doing great and he’s happy with the ones you found him. That’s good to hear you’ve got another one going. How hard are those to find? I mean, are they readily available or do you have to look pretty well to find those deals?
Inventory levels right now are really low. I know that they’re low across the country but specifically, in our area, they’re very low so that has increased the competition for homes that do hit the open market but I’m a part of several networks of wholesale investors who also have deals.
I’ve been successful and I guess marrying some of my clients to this wholesale investors and getting them deals that way off market. Really excited come march 1st
, I’m going to be doing a direct mailing campaign, I’ve been working pretty hard over this in the last couple of weeks with another investor client of mine, we’re going to piggy back, he’s going to be doing direct mailers as an investor, I’m going to be doing them as real estate agent with investors in hand.
We’re really excited to roll up that pencil, we’re going to be trying to beat the wholesalers to the wholesale deals and be able to give them to my clients, not FDA increased wholesale prices you know? I’ll take a commission but this getting that sales that put it under contract for 50 and wholesale it for 80 you know? My clients are going to get the benefit of maybe just paying me a commission and you know, getting that at 55. That’s really something that I’m excited about and it’s going to be something that I’m going to offer, I don’t, I can’t imagine too many agents are going to be offering that kind of services.
Right, I’m doing the same thing. I actually sent out 600 letters last week because yeah, I have three whole sale properties under contract now, properties I’m buying from wholesalers and you know, I bought a few more recently and the spread is yeah, 25 to 30 grand on those properties they’re making because they’re sending out the direct mail and finding those motivated sellers.
I kind of have the same mindset and if you find the deals that don’t work to buy then since we’re agents, we can list them and help them sell as well. It’s a nice kind of double whammy to make, help people and make money at the same time.
Absolutely. The idea is also again, I am an active investor but I stick to doing maybe two or three at a time so I’m not out here trying to outcompete my own clients, I’ve tried to put their needs above mine or at the very least even if you will.
I’m not greedy, I’m not looking to cherry pick the best ones off the top and you know, whatever, I mean, I truly am trying to take care of all my investor clients.
That’s great, that’s why I don’t work with investors myself because I compete with them so much in our market. Our market’s really tough, there’s almost no inventory in our hundred thousand person town, there’s less than a hundred active listings right now in the entire — every price range, it doesn’t matter.
We work in a bigger area than that but it’s just so tight right now. Cool. We’ve got your flips going, your rentals, we figured out how you’re finding this deals, what about the agent side? How is that going for you? What’s going on in that business?
It’s really good actually. Maryland is still one of the higher states for foreclosure rates. I’m in a part of a family owned business and we’re doing anywhere from 250 to $300 deals a year, I myself personally sold… I want this overall. I think I did 63 or 65 transactions personally and then the office did about 330. I mean, it’s been going well, I personally am not just a scenario agent, I do sell to my investors, I do list homes for my investors, for the ones we don’t keep for rentals and other purposes.
2015 comments on our post and you know, things like that, we sold a few homes through Facebook actually. It’s all real exciting. Real estate to me is just a lot of fun. No two days are the same, a lot of opportunities. Obviously in terms of earning, it’s uncapped right? It’s just as hard as you want to work and what you put it to what you will get out.
Great information. For those, you had a nice situation where you got to join family business, kind of a teen. For people who are looking to become agents, do you think that’s the best route to go or should they try to do it on their own?
When you say the best route to go? Do you mean join a family business?
Not necessarily family business because we don’t all have that option but there’s a lot of teams out there that would take on new agents and look for new agents. Not just starting out on your own in a brokerage but starting on a team, maybe giving up some of your commission but getting more mentoring and training.
Yeah, that’s a kind of a double edged sword because it really just depends on who you are as a person and what your focus is on. If you find it hard to kind of put yourself out there and market yourself, you definitely want to join a team to maybe where they you know, you have a lower commissions split but they’re really providing with leads and kind of getting you started that way.
If you’re hungry and you want to fight, you can probably join one of the smaller teams and just market yourself, put yourself out there, social media for a young agent is key in my opinion. You, get yourself in front of everybody you know, everybody they know, just put yourself out there, you should be able to get good eight to 10 sales in your first year, depending on your price point, that could be enough to get you started.
If you’re a lower end market, you know, maybe not but here in the DC area, if you sell 10 homes and Bethesda Chevy Chase with an average sales price of a million dollars, I’ll let you do the math.
Not a bad way to start out.
No. It really just depends on the person how aggressive they really want to be.
Right. Great advice and I agree with that too. For your personal goals, are you looking to expand the real estate side, to create your own team, are you focused on the agent side or the in vesting side more? What are your plans for the future?
Right now, our family owned brokerage has been primarily focused on REO properties working with banks and lenders and distressed properties. We do maybe 10 to 15 short sales on top of the bank owned sales that are all — they’re still banked direct to short sales so we get to leave directly from the bank themselves.
My goals, 2017 and beyond is to expand the brokerage into having two divisions, one being more of a retail traditional real estate brokerage but I also want to keep the REO team because that’s definitely a good source of business and revenue for us. I would say you know, we’ve already started bringing a few more agents, already here in 2017.
We’re going to be moving office spaces into a bigger office so that we have more room to expand but I think for the traditional real estate side, we’re probably looking more towards 28 a really good bet jumping and running if you will. I’ve got a lot of ideas that we’re going to be putting pen to paper and starting to roll those out here over the next 12 to 18 months.
Nice, I can say from my experience, it’s always nice to have that diversification because here in Colorado, we’re selling 200 REO’s a year and I think this last year maybe we sold like 10. There are no REO’s anymore. The inventory dropped by 90% because our market got so strong.
I’m still selling close to not quite as many houses but we’re selling a lot of houses because we have that retail side, agents in our team and we’re not relying just on the REO. Good plan.
Yeah. if the plan is then you know, long overdue but you got to crawl before you can walk and walk before you can run.
Yup, exactly. What about the investing side? Are you looking to do more flips or buy more rentals? What are your plans there?
I want to grow in all areas before obviously, that’s always the focus. Up until now, the most we’ve ever done at one time is three, I would like to consistently have three going at a time at all times. That’s kind of the goal, we definitely want to start picking up more rental properties. Just kind of for a longer term goal and then eventually, it’s crazy, I just had a client.
Do you mind if I share kind of a semi long story?
No, go ahead.
I have a client who wanted to buy multifamily property and they found a 40 unit building and kind of a quiet little area, I wouldn’t have thought to buy property up there because the rentals are not that strong but they bought a 40 unit property up in what’s called Hagerstown Maryland.
The average rent for each unit is probably you know, $500 or $600 which you know, for a 40 in a building produces plenty of income for sure but it’s no denying that. It’s still kind of a lower end market for where we’re at here, especially in Laurel Maryland which is an up and coming area, you can buy a one bedroom condo and rent it for $14.50 a month you know? 2 bedroom up in Hagerstown is going for 600. You can kind of be see the differences in the market.
They bought that building for 1.2 million and I know, you know, for most beginners who are looking at multifamily, most people know that you can go to commercial lender and get a loan for maybe 70, 75% max LPB on that of the purchase price and it’s all based on the performance of the property you know?
Obviously you have to have good credit scores and all that kind of stuff. What they did is they found an owner who was willing to take a note on the properties. The guy, he still had like 600,000 on a note that he had on the properties and he really didn’t want to take a hit on too many taxes.
What the guy did is he sold the property to them, took a $300,000 second at 1.25% interest. My investors, you know, 75% of 1.2. I think the guy took 350. They bought this property and cost them 12,500 out of pocket.
Not a bad deal.
Not a bad deal right? Especially when the monthly rent roll is somewhere in the neighborhood of like 22 or $23,000. Paying off their mortgage notice, it’s probably maybe 6,500, 7,000 a month, I think they borrowed like 875 at six and a half percent. Maybe one of you guys out there can do the math on that but you know, they’ll make back their initial investment in the first month.
That’s crazy. Really, when you get into those big deals like that, it’s not that uncommon to see the seller finance because of what you said, you know? If you’re selling a huge million dollar property and you take the entire proceeds, you’re paying capital gains tax on all of it but if you take the note out or you know, give the note to the buyers, you’re not paying it on that note. It comes in much slower. It makes a huge difference in the taxes you pay.
Right, exactly. That was just interesting you know? I had a few clients who have bought multifamily properties who were flush with cash and could do it that way but for those beginning investors or those who maybe don’t have half a million dollars just thinking to a multifamily, just know that there are some creative solutions that are available that kind of up to you how you want to put these deals together.
Right, for sure, that’s awesome. Michael. Well, you’ve provided a ton of information on this, gave us a lot of cool advice, talked about how you got into the business, for somebody who is looking to get into real estate investing, I know you gave some advice for agents already.
What advice do you have for someone who is looking to start flipping houses? What’s something they can think about before they get — jump into the business?
That’s a good question. Again, it all depends on the person right? If you’re young and hungry and you want to put boots to the ground and hit the pavement running in this game, you can always try to reach out to home owners who are, I don’t want to say desperate to sell but need to sell,” just like we were talking with the direct mailing campaign.
You know, a young investor could find a wholesale, if you can find one wholesale deal that you can put on a contract and wholesale to another investor and make 20, 30 grand, I mean, 20, 30 grand is enough to get you started on a flip with a hard money lender. What I’m talking about is somebody who may not even have five grand to their finding somebody in your neighborhood, down the street, knock on a few doors on some run down houses.
Maybe some of this people need to sell, you can offer them a contract for their home and flip that contract. I mean, obviously that might be a little too involved for a beginning investor so I might have jumped the gun on that one but it’s possible right? Anything out there is possible.
I would say if you do have the funds ready to go and you’re looking to get started, make sure you have all your ducks in a row and what I mean is, you know, if you want to work with a hard money lender or you got a private lender who wants to give you money, make sure you have that letter, that funding, make sure you have it all ready to go because when you’re making the offers, especially on properties that hit the open market,.
Some bank owned properties, these properties aren’t going to wait for you to contact your lender and get a letter and put together your LLC and you know, I mean… two, three days, that property could be gone. You want to make sure that you have all your ducks in a row, make sure you have all your LLC that you want to use for them.
Have copies of your LLC ducks readily available, that your article and organizations. Maybe your operating agreement if there’s multiple members because the banks will want to see who that signing authority for the LLC, you know, your proof of funds, if you’re paying cash or if you’re getting hard money or funds from some sort of lender, make sure you have all that ready to go before you even start looking would be my best suggestion.
Because when you find that house that you want, it won’t always just stick around for you to go get your ducks in a row.
That’s great advice. I see that a lot with regular home buyers who maybe they’re not even flipping or buying investment but they’ll miss out on a deal because they’re waiting to talk to a lender and like you said, two or three days, those deals are going to be gone.
Then also, on the flipping advice, that might be a little bit advanced but for people who don’t have money, you’re going to have to get creative and do some advanced techniques if you want to get started in the business.
You’re going to have to work hard, like you said, you’re going to have to hit the ground running and really put a lot of effort in it to make it work, it’s not just going to happen for you and magically have a house show up on your door step.
Right, exactly. Awesome Mike, I think those are all the questions I had. Before we head out of here, of course, if there’s investors, you know, wholesalers, anybody in your area who wants to get in contact with you, what’s the best way to reach you?
You can reach me on my cellphone. Text, call, whatever works best for you, my cellphone is 202-369-5183. Or you can reach me at my email which is firstname.lastname@example.org
. Awesome, before we head out here, anything else you want to add? Are you good to go?
No, I kind of just wanted to chitchat with you, I know that you’re doing some things out there in Denver. Last time we talked, you had like 20 or 22 investment properties. Has that number increased, decreased or where do you currently stand on that?
Right now well I have 16 flips going right now and then I have 14 rentals. Total, I’ve got 30 investments plus my personal house at that moment. It’s going well. I’m selling next week I’m selling my high end flip for around 800,000. That’s a big project we’ve been working for a while. That’s exciting. I’m going to talk all about that once it’s done.
Yeah. If you don’t mind, if I kind of flip the script and become the narrator for you, what is the biggest rehab that you’ve ever done? Just out of curiosity? 70/80, is it over a hundred?
About 80. There’s a couple that we’ve been in that 80 range. I have a property now that probably would have beaten that, actually, two properties now that might. One of them were actually selling before doing the work. We bought it for 170, had it listed as coming soon on Zillow, I do that with all my properties in case someone comes along and wants to buy them.
Someone sent me an offer of 215 for it and all we done is clean up some trash on it. I’m avoiding the rehab on that and then another one we’re getting started on that will probably at least 80, maybe a little more that’s a full gut on a 1,900 house, that will be a big project.
What about yourself? What’s the biggest one you’ve done?
About. 85nearing completion right now. We bought the property for 92,000, we’re going to do an $85,000 rehab and the goal is to sell for 255. Big project, 1,800 square foot cape cod, we had to do basically everything almost from the ground up, brand new,tear o ut dry wall, rip out walls, brand new stock work HP Asus system, exterior siding, we got to do a dorm on the cage so we can have a bathroom upstairs. It’s a really involved project but I’m really excited about seeing the finished products for sure.
Those are stressful but fun when they’re done.
Yeah. You know, we’ve just completed a project, I don’t know if you want to hear about those and the numbers that we did but, you know, we bought a house and we settled December 13th
and the rehab was finished in exactly a month. January 13th
and we just signed a full price contract, that’s probably the smoothest, easiest transition flip that I have had. Less than three months.
That’s fast That’s really fast. That’s nice.
I was stressed for that one. That was a $45,000 rehab, it wasn’t just a carpet paint type deal.
That was exciting and I don’t know man, I just think everything is exciting in this business.
I agree. I will say I’m addicted to buying houses.
It’s literally is addicting you know? You’re making money, you’re hustling, you know, you’re transforming things that’s — it’s funny. I put a couple of my REO’s on our social media sites and people were almost angry with me for putting up houses in those conditions.
OJ, you should be ashamed of yourself marketing a property like that. You know, it’s funny that some people just can’t be… can’t see the value in a home that’s just distressed and until you turn it around and all of a sudden those same people, my god, this is gorgeous.
It is, well the seller, no matter who the seller is or what condition the house is, you owe them marketing, you can’t not market it because the house is in good shape. Even if it’s a bank, you still have to market it like you would in other house.
Exactly. I had to explain that to the lady. I don’t think she cared but.
Yeah, you run into that a lot.
Yeah, it happens.
Awesome. Well, Michael, thank you so much for being on the show, really appreciate it, lot of great information, I know we’ll keep in touch but great talking with you again, yeah, hopefully we’ll see each other soon here.
Absolutely, thank you for having me man. I had a blast.
All right, great. All right, take care of yourself.
All right, you as well.