Data Driven Real Estate Podcast #5 – Wall Street Hard Money, Homevestors and Real Estate Investing - We Buy Ugly Houses - Tim Herriage. DDRE#5

    Wall Street Hard Money, Homevestors and Real Estate Investing - We Buy Ugly Houses - Tim Herriage. DDRE#5

    For nearly two decades Tim Herriage has been on the leading edge of the Real Estate Investor space. This includes being the Founder of 2020 REI Group, Founder of B2R Finance (a Blackstone Company), Founder of the REI Expo, and a Franchisee and Development Agent for HomeVestors® of America. Through his ownership in various companies, Tim aggressively invests in single-family houses, primarily in the North Texas area. Tim has completed well over $1 Billion in real estate investment transactions, including the acquisition of more than 1,300 houses.

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    Show Topics

    • 01:05 How Tim Herriage was introduced to real estate
    • 03:03 The real estate investing book that launched his career
    • 08:18 How long has Homevestors and the We Buy Ugly Houses brand been around
    • 08:57 How the we-buy homes franchise companies work and what to expect
    • 10:50 For the We Buy Houses Franchises, do you own an area?
    • 11:23 We Buy Houses Companies: franchise vs. advertising costs
    • 11:52 The benefit of leveraging advertising dollars and experience of We Buy Houses franchises
    • 14:19 The benefits of separate ad councils and making hyperlocal marketing decisions
    • 15:12 Owning a territory for We Buy Houses vs commitment to advertising in the territory
    • 16:15 The importance of learning about conversions and what We Buy Homes franchisees learn about mailers, billboards, and other forms of marketing
    • 18:47 That one time a creative mailer to landlords had the cops called
    • 19:38 The one kind of real estate investor the We Buy Houses brand might not work for
    • 22:44 Why aren’t Homevestors and ibuyer brand like Opendoor best friends?
    • 25:14 The genesis of B2R finance and Wall Street hard money at Blackrock
    • 26:34 The issues Wall Street had understanding and working with Main Street investors
    • 30:00 the biggest mistake Wall Street hard money made early on which led to financing less real estate investors? Hint: mission creep!
    • 32:33 Will Wall Street hard money kill off Main Street hard money lenders?
    • 33:22 Why Main Street hard money always has a place
    • 34:39 The one thing Main Street hard money lenders should be focused on to succeed
    • 35:18 Key features and services allowing local hard money companies to charge more
    • 37:14 Where the first company to do property-backed, single borrower securitization
    • 37:39 The journey to getting securitized pools of hard money loans was not easy for this reason
    • 39:00 Wall Street didn’t event know that NARPM existed!
    • 39:59 Did Blackstone and Wall Street real estate buyers ditch buying at the trustee sales?
    • 42:23 How Invitation Homes got started
    • 43:39 What changed for trustee sale buyers in 2013 and why the trustee sale buying business is so brutal
    • 44:06 A new business model shaking up the hard money loan game
    • 44:48 Who is holding the bag of hard money loan pools fail?
    • 47:14 Has Covid impacted rentals? What might change that concerns Tim?
    • 49:44 Are California investors moving to Texas?
    • 51:52 Why Tim decided to slow down
    • 52:33 The number one source for real estate deals in Texas in 2020
    • 55:00 The call average response rate and conversion rates for real estate investor mailers
    • 56:26 SEO strategy for We Buy Houses pages for real estate investors
    • 58:00 SEO vs SEM for real estate investors and how to improve
    • 58:39 The importance of defining your audience as a real estate investor and one of the worst mistakes investors make
    • 59:29 An easy way to get better at identifying real estate investing opportunities in your local market
    • 1:01:47 The number one data point real estate investors should be focused on right now that will be profitable for the next few years
    • 1:02:19 The one urban trend real estate investors should be watching in 2020
    • 1:03:00 Trends Covid-19 is having on the real estate market and features consumers are wanting

    Show Transcript

    Aaron Norris [00:00:02]
    Hey, welcome, everybody, to the Data Driven Real Estate podcast, the podcast for real estate professionals dedicated to driving business success using data. I'm your host Aaron Norris. And with us today, we've got Tim Herriage. For nearly two decades, Tim has been on the leading edge of real estate all over the investor space, actually. This includes being the founder of 2020 REI Group, founder of B2R Finance, a Blackstone Company, founder of the REI Expo, where I met Tim, and a franchisee and development agent for Homevestors of America. So we get to talk a lot about a lot of different stuff today. Through his ownership in various companies, Tim has aggressively invested in the single-family housing space, primarily in northern Texas. Tim has completed over one billion in real estate investment transactions, including acquisitions of more than thirteen hundred houses. So hey Tim. Welcome to the show. Am I doing here? I am so good. I've always been impressed with the breadth of your experience in the industry and it started with REI Expo's how I met you. But let's go back way further. How did you even get into real estate?

    Tim Herriage [00:01:05]
    Well, my grandmother would have told you I tripped into the business. But in all honesty, when I got out of the Marine Corps in 2001, I was looking for a job. And I posted my resume on a Web site called Military Hired Dot Com. And another former Marine actually hired me as his project manager. So I had a little bit of construction experience. I had a lot of experience managing people in combat, not really construction. But, hey, you know, sometimes there's no difference. And that's how I am. I mean, yeah. And that's how I got started. The business I started out managing the projects, the remodel projects, and then just slowly morphed into acquisitions and then went out on my own.

    Aaron Norris [00:01:49]

    So you didn't even have any background with construction or no family and real estate. You just you really did trip and do it.

    Tim Herriage [00:01:56] No, no, no, I, I didn't finish the quote from my grandmother. She said I tripped into it, but I cut my teeth on it. So my grandfather was a real estate broker. My dad's a real estate broker. My mom's real estate broker. My wife's a real estate broker. Real estate is very much a family.

    Aaron Norris [00:02:16] It was in your blood.

    Tim Herriage [00:02:17]

    But investing wasn't there. There were no investors in the business. So were the family. You know, the glorious story of why I went to the Marine Corps wasn't. Post 9/11, it was in some need to serve the country. It was because my family had no money to send me to a school and I had bad grades. So the Marine Corps, they and they did not discriminate against either of those issues. So they were an obvious choice.

    Aaron Norris [00:02:45] Fair enough. I love hearing everybody's path into the business. So. So that's where you got your start. And let's talk about how it evolved. I mean, you've been involved in so many things then over the last decade and a half or so. How did it transform?

    Tim Herriage [00:03:03]
    I think it all got started. Three parts. One, when I got to the Marine Corps, my gunnery sergeant, who was the guy kind of directly in charge me, gave me Rich Dad Poor Dad the book. And it may have been the second book I ever read. Maybe third. I'm not sure. I didn't read much for that book. Just kind of spoke to me because I wanted to be rich and I didn't have a rich dad. And here was this, you know, Rich Dad Poor Dad thing. So that book kind of got me interested sitting at home late at night. I bought a Carleton's sheets course, never opened this book. Pay the three hundred and something dollars. I actually did over there. But then when I opened it, you didn't know what book to read or CD to use first. And there was a big pamphlet that said call for customer support. And as soon as you call, they want another thousand dollars. And then they would tell you which book or take to listen to far. So from there, I said there's got to be another way to get in this real estate. I want to be rich. I want to be wealthy. I love real estate. And I think I did at least. So I went to a local networking meeting a REIA here in the Dallas Fort Worth area was called Aereo back at the time. And I just remember being struck that this is I was 21, 22 years old. We all see those kids walking in there now. And it was just amazing. People were willing to help me. People were positive, people...And there are all these resources and nobody wanted a thousand dollars or me to give them a credit card, it was just. Just really help of people, so, I mean, that's kind of it was exposure through the book and desire through the infomercial and then opportunity through the networking group. And that's actually had from there. That's what got me to really put my resumé out. If I were really cause I hold the life insurance in the first of the Marine Corps, so I put my resume out, wanting a ruleset job, and that's how I met the other Marine. So I started managing properties for them. And then about six months later, he taught me the acquisition side. And then I got to start buying. And so now I was buying and fixing and doing this. Owner finance sales. This was back in '02. So what is that, 18 years ago? And then that was before Dodd-Frank or even the Texas lease option, Bill. We were still allowed to do contract four days back then. Yeah. I mean, after a year, I decided I wanted more. And that's where I called a guy at Homevestors I've been buying wholesale properties from. And I said, I want to, you know, come work for you. And he hired me and I was number one in the nation is by acquisitions for him. And then I'd met his hard money lender that we had done business with over there. And I called him to be my lender. So that was going to go on my own. And then he offered me a partnership because he goes, I like the way you do business. Let's partner. And so then we built a portfolio of about sixty-five houses in two years because, you know, and I feel I was making six figures a year, but I was like I had only like six bucks in my bank account because I was young and making a bunch of money. So it was really nice to partner with someone like Scott Horn, who was very well versed in the industry and had a lot of money at his disposal to kind of help me grow up over the next couple years. And then I got back home busters in '05 when I met my wife, Jennifer. She had a franchise. I bought a house from her. The joke is that I made more in the house than she did. So we got married to keep it all in the fan.

    Aaron Norris [00:06:59] So Homevestors is also a matchmaking company. I did not know that.

    Tim Herriage [00:07:03]
    Yeah. Yeah. Yeah, it is. So you go from there. After the recession, we made it through the recession, you know, with our marriage and finances intact. The Great Recession, after the recession, all the real estate clubs have dried up. And that's when I just decided that I miss Homeinvestors. I miss the annual networking events, and I miss the involvement with the local group. It wasn't altruistic or anything, I wasn't trying to give back to the community, it was just a great idea, I thought. So that's when I started the REI Expo. And then through the REIT expo, I met a lot of people like yourself and other influential people in the industry outside of Dallas. That's when I got to speak it along. How did I get here? That's how I was invited to speak at the Five-star Conference. And then that's where I'd met Blackstone when they recruited me to help start to ah. And then I ran that for two years and I said enough. And I came back to Dallas and grew a beard and stopped wearing a suit and tie.

    Aaron Norris [00:08:14]
    And you went back to regular old real estate?

    Tim Herriage [00:08:17]
    Well, yeah, pretty much.

    Aaron Norris [00:08:18]
    Well, let's unpack it a little bit for people who aren't familiar with the Homevestors brand. Where have you been, first of all? Because the "We Buy Ugly Houses" has been. How long has it been around now?

    Tim Herriage [00:08:30]
    They started in '96, think so? Twenty-five to six years probably.

    Aaron Norris [00:08:35]
    And they've never really given up on the sort of the outbound marketing experience between billboards and radio and TV. They've really been one of the biggest players in the space even during the downturn. I remember seeing their billboards in the Southern California market here where I'm at. They've always invested in those. So for people who don't know how it works. Talk a little bit about a Homevestors and what being a franchise even means.

    Tim Herriage [00:09:04]
    I think, you know, Homevestors is a really good ramp into the business. If you're ready to go full time, you know, it's they pay a franchise fee. It's been a while since I've been on that end of it. It was fifteen fifty thousand. I'm sure it's still somewhere in that range. You can do that like a full-time franchise of the part-time Associate's franchise. And you paid these. You had to do this monthly advertising commitment because that's a big, big part of the model you're going to generate leads. Right. And I tell people, I'll tell you, if you want to be in this business, you've got to be generating leads somehow because, you know, someone's not going to come knock on my front door and offer to sell me a house right now that they've got to know about me somehow. So it is with Homevestors there's some really intense training is a lot of support. Their technology is ever-evolving. With regards to these cool ipad apps that tell you exactly what to pay for the house and then you buy the house and you typically pay a fee, a transaction fee and a royalty fee when you buy and sell the house. So, I mean, that's the gist of it. Typically, it was a five-year contract and a lot of people would leave after the use of fifth year. A lot of people, I'd say, if I remember correctly, it was between about a third would leave after their first contract or during or after their first contract and another third would stay for another period. And then, I mean, you know, you've got a good bit of people and some of the top guys in the system have been there for 15, 20 years.

    Aaron Norris [00:10:50]
    And you don't own an area, and I know out here in the Inland Empire, I think the last time I heard there is seven different franchisees. So if somebody were to call off a postcard or a billboard, it's in an 800 number, if you will, and it sort of does the round-robin and whoever picks up the phone. So but it's just so interesting to me because depending on what market you're in advertising L.A. versus the Inland Empire or Dallas versus Galveston, you know, it's it does the amount that you pay for the franchise vary depending on the market.

    Tim Herriage [00:11:23]
    No it's the same fee across now, where it's going to vary on the market is the amount of cost per lead. Because like you just said, advertising in downtown L.A. or downtown Manhattan going to be very expensive. Advertising in the Inland Empire, less expensive. Homevestors has a pretty good, I mean, I love their system and I'm sure they should still do this way. It's kind of every month, like thirty, forty-five days before the month, we would sit down as an ad council. And at one time the Dallas Ad Council had twenty-five people and we would all talk about our budget like. So this is you know, we talk about our budget. Forty-five days from now and we'd make a commitment. So I may commit to spend five thousand dollars in October. And you would commit five thousand dollars in those kind of part-time guy, would commit one thousand dollars and we'd all pool our money together and that's how we would go out and buy the ads. And so then the call rotation software was kind of a weighted distribution. It is a round-robin, but it's weighted off of the amount of money you spend rises. Picture Wall Street, where I know you have some experience right in your capital stack, right? And you own a slice. And so you may get the eight, fifty, and the twenty-second call. Right? I mean, that may be where you sit in the stack, whereas the big guy that was spending $20 grand a month, he gets the first, the fourth, the eighth, you know, and he's really shrunk in the way this time. But he had to pay. Right. And he had to put the money up sometimes 60, 80 days in advance of when the final ad runs or when you're going to get that phone call. So I always found it was when you don't know, as you know, a lot of times investors that really have to make some harsh decisions between which advertising medium or which list or which message. And so the nice thing is, is that Homevestors literally for two to three thousand dollars a month. I don't know what the minimum was, almost twenty-five hundred that you could really get a potential to get a lead from multiple, you know, from billboards, from TV, from Internet radios, print to the Yellow Pages, that kind of thing. So I think it lowers the barrier of entry for someone that's interested in the direct sales approach of kitchen table buying because you're able to let a national marketing four firm was almost 30 years of data, makes the advertising decisions for you based off your budget.

    Aaron Norris [00:14:07] That's what I always thought. It was really interesting and I just wasn't sure at the model. So down at the local level, you guys are the ones making the advertising decisions that are more specific to the market.

    Tim Herriage [00:14:19]
    Yeah. Yeah. So each kind of MSA would have it as ad council and everyone and every active franchise was a member of that ad council in Dallas, Fort Worth, we had the DFW Ad Council because what would happen is it's the same TV market. So we had to agree to the ad company. Adbusters would come in and make a recommendation like we think you guys should spend one hundred fifty thousand dollars this month. And that sounds like a lot of money. But remember, you're dividing that among 25 people. And let's say we allocate this much for TV. But, you know, Fort Worth is its own territory and Dallas is its own. So you guys got to agree that Dallas is going to pay 60 percent of the TV. Fort Worth is going to pay 40 percent. So it's a business. If it gets fairly complex. He would ask earlier, if you owned the territory, you don't own the territory, you actually are committing to only advertise the business in that territory that you bought the franchise. So I wouldn't have been able to advertise back in the day. And I haven't seen the new UFO story in all franchises have a offering circular. So I haven't seen it. I'm not disclosing anything. Insert legal jargon here. I don't care. The way it would work is I would buy a Dallas, Plano, Arlington franchise and the MSA. And if I got to lead in L.A., I could buy that house. I was allowed to buy anywhere. I just wasn't allowed to advertise outside of my territory. That's the way it worked.

    Aaron Norris [00:16:07]
    And where I found some of the franchises that I knew that where they got frustrated as they were also creating business on the side. And the only reason I bring it up, because you're very familiar with Homevestors and I know there's other ibuyer brands out there, but whatever leads you created outside of the brand, you were still paying a fee to the company, correct?

    Tim Herriage [00:16:27] Oh, yeah, yeah, absolutely so in the franchise agreement back in the day, I think you could have one or two exemptions per year. As long as it was a personal property. Yeah, but it if it was any transaction, whether it was your mom's house that you were buying from the family, you're gonna flip. You owe the transactions fee.

    Aaron Norris [00:16:51]
    I'm just really interested from a data perspective. I mean, with that much sophistication, sophistication at the national level. Thirty years of experience in the space. And then also that I didn't realize that's how I set up the ad council approach where you were getting some input from National and they would see across the entire country what was working and what wasn't. Did you see them change a lot of what was converting as far as marketing, whether it was the mailers or the billboards? Any thoughts on that?

    Tim Herriage [00:17:21]

    Oh, absolutely, because there was always a marketing fund that you paid into as well in the marketing funds, and that was like seven hundred fifty or two dollars per closing. But I love paying that money because that money went into this pot. Every franchisee nationwide would pay it. And the ad company was always beta assessing a letters. New lists, responsive landing page is different internet copy. Different... if you ever see the billboards, you can really go to Dallas. There's always a new billboard being tried out. And they're always tracked. And they've got Charlie Calise runs the advertising company that does Homestors. And that guy is a genius and is his ad science platform is something that I'm very envious of. And so. Yeah. So that was a nice thing, right. You know, many investors, they get into this business and they start all that new green postcard, yellow postcard, red postcard. What's a... you know, and you did have someone from National coming to every monthly meeting telling you what they thought you should do and tell, and showing you the response rates of the beta says they ran in Sioux Falls or they run a beta test in Dallas and Atlanta and Jacksonville simultaneously to make sure that all samples kind of responded the same one time we sent out a, this one was not popular.