Always have a contingency plan: We all hope the real estate market stays hot where houses sell in days with multiple offers. The reality is, what goes up, must come down. The market will eventually experience at least a correction where prices adjust downward. When you purchase a flip, property run numbers on multiple exit strategies.
Shows like Flip or Flop and Fixer Upper with Chip and Joanna Gaines have really glamorized the creativity and enjoyment that comes with buying a rundown home, fixing it, and then selling it for a profit. Some amateurs have ventured into this industry and have made a lucrative career out of it. But others, particularly when a market is stagnant, have lost their shirts. As a part of my series about the ‘5 Things You Need To Know To Create A Successful Career Buying, Rehabbing, and Selling Properties’, I had the pleasure of interviewing Scott Oots.
Scott Oots is a successful entrepreneur owning multiple businesses, with a primary focus in real estate.
Early on, Scott worked for multiple companies performing standard 9–5 duties. After doing this for several years, Scott realized he had little desire to work for someone else, and he often told people he felt he was unemployable. This would sooI n become Scott’s reality as he was eventually laid off from his 9–5, with no idea of what he was going to do next.
Scott quickly realized that he was destined for more, and his entrepreneurial career began when he decided to dive back into the cell phone industry. Scott soon began purchasing and repairing used cell phones and selling them through Amazon, eBay, and multiple wholesale outlets. In just two years, Scott mastered his craft and quickly turned his start-up business into a cash cow, increasing his profit from zero dollars to a net worth of over 4.5 million.
Thank you so much for doing this with us! Can you tell us the “backstory” about what brought you to the Real Estate industry?
In the past I have held positions managing a gym, in sales, and even sitting in a cubicle. Each of those positions were jobs, they were not a career. I have always been someone to push the limit, I always ask why, and I always look for more efficient ways to accomplish a task. During my time in past positions, I discovered that most of corporate America was not set up for people like me, they want people that will come in and perform the job functions without asking why, without pushing back or finding a better way to do something. Most of the managers I worked for were under qualified, had no desire to help their team grow and set them on a career path.
Knowing that I needed to do something different, I decided to start purchasing used cell phones, repair them and sell them on eBay & Amazon. I emptied my bank account and went all in. I had no idea where my next rent payment was going to come from, but luckily, I had a supportive wife. This business quickly grew into a $4M per year business and my wife quit her job to help. We were making a lot of money shipping hundreds of phones overseas to areas like Yemen. This business continued for almost four years as a two-person operation. It was boring and mind numbing, and I knew that I wanted to do something different.
We took the money generated from the cell phone business, turned it all into cashier’s checks and went to the courthouse steps to bid on foreclosure properties. These were properties we had never seen, and we had no idea what we were doing. Luckily our first property was a success, so we bought two more and so on. We decided to turn this into a business generating our own direct to seller marketing and building a team.
Fast forward to 2021 we have a team of 14 people working for us and we contract 200 properties per year to either fix & Flip or wholesale to other investors. I told myself when I started this business that I would be a company that puts its employees first. We will always value employee feedback, we will work as a team, we will have an active office environment with collaboration and most importantly treat employees like family. Six years in, we have lived up to that and have an amazing team of people with very little turnover.
Can you share with our readers the most interesting or amusing story that occurred to you in your career so far? Can you share the lesson or take away what you took out of that story?
Unexpected things happen when rehabbing homes, and the phrase “when it rains, it pours” is a real thing. We had purchased a house in California for around $500,000.00. As part of our deal with the seller, we were to provide him with 5 days to move out after closing. Unfortunately, on day one of ownership, the seller passed away in the property where a family member found him. We had a significant investment in this property and time is money on flip properties. We ended up with a 30-day delay starting our project allowing the family time to work through everything that had happened. When we were able to start the project, we found the house to be stacked floor to ceiling with belongings in every room. It took 3 additional weeks, 12 roll off dumpsters and hazmat suits for our construction team to clear out all the items and the rats that took residence in all the piles of stuff.
On typical flip properties we allow 2 days for demo and cleanout and construction begins on day 3, usually wrapping up on day 30 when we put the property up for sale. On this project we were approaching day 60 and hadn’t even started construction.
On day 1 of construction, the city code enforcement placed a red tag sticker stopping all work citing dangerous conditions. The notice was based on the hoarder items that had been in the house previously, the items we took 3 weeks to clean out and dispose of properly. The city was about 6 weeks behind in posting this notice, so even though the cleanup had already occurred we needed to go through the proper channels to clear up the notice and receive permission to start work. It took us another 3 weeks to obtain the approval from the city to begin work.
Construction finally started on day 80. Usually, 80 days into a project we have the property purchased, rehabbed and sold which allows us to move our funds to the next project. That wasn’t the case here.
During construction we added additional time for unexpected items such as replacing wires, the electrical box, and all new plumbing. When we finally wrapped up and listed the property it apparently became a haven for homeless people to sneak into at night to shower and sleep. We had no idea this was happening until the police department called us. They did over $10,000 in damage to the house during that time.
We owned this property for over 160 days, and barely broke even due to the time, work and repairs needed. Not all properties can be a winner.
Do you have a favorite “life lesson quote”? Can you share a story or example of how that was relevant to you in your life?
A good friend of mine once said to me “Collect Memories, Not Things” and “Live Life by Design”. When I started this business, I bought a big expensive house with multiple garages and a pool, multiple cars, off-road vehicles, lavish vacations and the desire to want newer and nicer things. In 2017 me and my wife were at the Route 91 concert where the mass shooting occurred. We were lucky to survive while so many people were not so fortunate. From that point on I started to live by these quotes, I started to appreciate time with family, I sold the house, the cars and basically everything that wasn’t important anymore. We now rent the place we live, we focus on making memories, we focus on enjoying life, we never know how long we have left. I want to build a legacy for my family. I want to look back on life when the time comes and say that I “Collected Memories, Not Things” and that I didn’t spend my entire life behind a desk. I appreciate every moment of “Living my Life by Design,” my design.
Are you working on any exciting new projects now? How do you think that will help people?
I enjoy helping others build and grow their real estate investing businesses. My newest venture is The REI Masters where I offer one on one coaching and masterminds geared towards real estate. I also speak at many Real Estate events with an attempt to make a difference and motivate others to step out of their comfort zone and build a legacy.
What do you think makes your company stand out? Can you share a story?
I talked about how we have not just built a team, we have built a family of people within our company. We strive to offer the same to all of our customers. My entire team is not just setting out to make a dollar, we are setting out to help others navigate their unique situation with their property whether they inherited it, the repairs are too much to handle, they are in a tough financial situation or they just want to sell quickly. We have fantastic reviews from past customers, we have even received gift baskets from customers thanking us for taking care of them. In a time where customer service is becoming more automated, where you end up talking to a machine before talking to an actual person, a time where you don’t feel valued as a customer, we set out to break that trend offering amazing customer service and support.
None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?
As long as I could remember I saw my parents work long hours to provide for our family. My mom had to work out shoes to ensure I had my soccer jersey or cleats. I saw them work themselves so hard every day for their employers just to have the company close and let them go with no notice on the exact same day. I realized at that time I needed to do something different, and they were my motivation to change my path.
Another person is my beautiful wife. We were married young; I don’t think she had any idea what she was getting herself into with me. Even with all my crazy ideas, all the risk taking, all the business ideas, she stood by me. My wife is such an amazing person and none of this would have been possible without her. I don’t think anyone would have put up with my long hours, the stress, the tiredness, and I hate to admit it but probably a short temper as well. She pushes me to accomplish my goals, she lifts me up and she is my sounding board. Without her, I don’t know where I would be at this point.
You are a successful business leader. Which three-character traits do you think were most instrumental to your success? Can you please share a story or example for each?
- Humble: This is a trait that most people want, but very few have. I have been very successful in my business; I have made a lot of money. Most standard business owners would pad their personal bank accounts. My team and community are very important to me, we pay our team well and reward them with incentives and bonuses for their hard work. During the holidays we have gone to Toys R Us and paid off all the layaways in the store, we have asked the community to nominate friends or family that we could provide a Christmas to. We bring my team to the store, buy all the presents these families need, wrap them and deliver them to the parents so their kids will have no idea we were even involved, and the parents can take the credit for providing a Christmas present. We give back to our community in many ways, we have even provided turkeys for Thanksgiving, surprised unsuspecting servers with large tips during the holidays, and sponsored local sports teams. We strive to ensure our entire team stays humble, they are all thankful for the success we had and remember to give back and pay it forward.
- Hard-Working: In 2021 I will have 6 businesses I run with over 40 employees in the US and overseas. I have 40 people that depend on me for a paycheck, they depend on me to ensure their jobs are secure. Hard Work is a trait that I learned from my parents at a young age. I mowed lawns for all the neighbors, I installed irrigation systems at 14, I helped out a disabled neighbor perform tasks around his house. My friends were out playing, I was focused on working hard. Fast forward to today, I will not ask my employees to do any task that I will not do myself. I will go walk a house on a Saturday, go install flooring at a house to help the contractor, or scrub a toilet if needed. Nobody is above working hard; we are all a team from the janitor to the CEO. I would like my third one to be Handsome, but I’ll go with something a bit more realistic.
- Compassionate: Over time the world we live in has changed. Compassion seems to have gone out the window, and we adopted an every-man for himself attitude. I strive to be someone that has compassion for unique situations. Our sellers usually call us because they need help and have no idea where to turn. I feel for them and want to be as compassionate as I can to their situation. I can relate to financial difficulties, me and my wife lost the first place we bought, our first home together, to foreclosure. We had no idea what to do, no idea what options if any were out there for us. I wish at that time someone would have shown some compassion to us and offered advice to help us with our situation. I don’t want anyone out there to feel like we did, feeling like we had nowhere to turn, we had no help, we had no idea what to do.
Ok. Thank you for all that. Let’s now jump to the main core of our interview. Can you share 3 things that most excite you about the Real Estate industry? If you can please share a story or example.
- Residual Income: Real estate if done right is a great retirement tool through income properties. Now there are many people that voice their opinions that income properties are not completely residual income due to upkeep, tenants and liability. I strongly believe that if income properties are purchased at the right price they are residual income. Sure the homes will need remodel, repairs, tenants, insurance, property management and so on, but if taken care of these properties will be a major asset when it comes to retirement.
- The unknowns: When my company purchases a property to fix and flip we pride ourselves on doing the project right. We don’t hide any issues that we find, we repair everything to ensure the buyers of the home receive a final product that will be reliable for years to come. With this, I do get a bit of excitement out of the unknown, not knowing what we will find in the walls, not knowing the full risk. It’s exciting to me to try and stay on budget while not cutting corners to ensure profitability when the project is all wrapped up. We purchased a property in Temecula California at one point in time. The property looked like an easy 30 day rehab and list. Once we started work we realized the previous owners didn’t keep up on maintenance as well as it had seemed. We ended up having to replace the electrical in the house to fix what we call a “homeowner special”. Basically this means that the homeowner most likely went on youtube to figure out how to wire in new outlets and lights and in turn created a huge fire risk. It was shocking that the house had not gone up in flames from the shoddy electrical work. We were able to obtain the proper permits, and run the project off a generator to ensure we still completed on time and just barely over budget. It took a good team to work on a quick solution to fix the problem at hand without sacrificing the end product.
- Housing will always be needed: The real estate market will continue to rise and fall forever but there will always be a need for housing in the form of rentals, purchases, apartments, trailer parks, vacation rentals and most likely some things I haven’t even thought of. What will continue to change is the way houses are purchased. We are in the age of Ibuyers trying to change how consumers buy and sell houses. It is possible to buy a house completely online without a real estate agent doing a virtual walkthrough. This is very exciting, it is showing times are changing, the way consumers shop is changing. These shifts require a constant stream of new ideas to be generated within my business to ensure we are changing with the times, to ensure that we don’t become obsolete. When the IBuyers first started invading the marketplace with millions of dollars in advertising on a monthly basis we felt the hit within our business. Homeowners were receiving offers well over what we were able to offer as these IBuyers were looking for such a minimal return on investment that we had a tough time matching their offers. We immediately called together a war room to brainstorm new ideas on how to beat the competition. We made shifts in how we were placing offers, who we were marketing to and what our message was. IBuyers are still around and always will be, but we win the majority of the time we go up against them, usually with an offer lower than was offered to the seller by them.
Can you share 3 things that most concern you about the industry? If you had the ability to implement 3 ways to reform or improve the industry, what would you suggest? Please share stories or examples if possible.
The unknowns: Now you will realize this was on my list of things that excite me as well. It’s possible to have something that concerns you but also excites you at the same time. When purchasing the rehabbing flip properties, it’s not just the rehab budget and rehab timing that we must worry about. One of the main factors is comparable market sales in the area, also known as Comps. When we purchase a property in a given area, we rely on comparable properties in the area to ensure that when we find a buyer the house will appraise for the amount it sold for, therefore allowing the buyer to obtain a loan on the property.
We purchased a property in San Bernardino California a couple years back, well before housing prices started to increase significantly. We were about halfway through rehab on the property when our realtor alerted us of multiple properties selling on the same street, properties that would be our comps for record low prices. It seemed that the seller of these properties wanted to sell quickly and offloaded them at a discount. Since these were almost identical properties it had the potential to drag our potential sale price down and put us in a negative profit margin. We were lucky enough to make enough money to cover the project costs and barely profit on this project when completed and sold. See it’s not just what you do to a project, it can also be what neighbors do that can impact the value of the house you are working on.
What advice would you give to other real estate leaders to help their teams to thrive and to create a really fantastic work culture?
Prior to the first hire, outline what you want your culture to be including your core values and mission statement. When making that hire, all company materials must align to that vision, they all must be cohesive from the job description, employee agreements, employee handbook, website, training and office culture. I made a commitment to myself that I would take time out of every day to talk to employees, find out how their weekend was, how life is going. I take each employee to lunch often to talk about personal life and work. It is important to show an interest in their lives, to show them you care about them as more than an employee. Also, ditch the cubicles!
Ok, wonderful. Here is the main question of our interview. Can you please share with our readers your “5 Things You Need To Know To Create A Successful Career Buying, Rehabbing, and Selling Properties”? If you can, please give a story or an example for each?
- Think outside the box: The real estate industry is evolving. I have seen so many people attempt to enter the real estate industry following exactly what their friend did, using the same approach, the same marketing, the same sales pitch. This will set someone up for failure very fast. It is important to use what you have learned as a baseline to get started, but you have to figure out what makes you unique, what will make you stand out from the competition.
- Partner with a good team: If you are looking to obtain a real estate license, don’t rush into it. Meet with local team leaders to find the right fit for you. An acquaintance of mine jumped into the real estate industry a few years back. He went and passed the test to obtain his license and signed on with the first team he came across. This set him up for failure immediately as they offered no training, no advice, nothing to help him grow. He ended up joining 5 teams in the first year of having his license and I saw his motivation disappear quickly. He is now working a 9–5 job outside of the real estate industry.
- Real life is not HGTV: Each time I tell someone that I “flip houses” the response is always “I’ve always wanted to do that, I watch Flip or Flop all the time”. Keep in mind, HGTV flips an entire house in a 30-minute episode, they go for drama to keep the viewers entertained and to keep them coming back. Starting in this business and flipping your first house is not as easy as TV makes it seem. The “actors” are smiling the entire time as they just came out of their air-conditioned trailer to shoot a scene. I was approached by someone in the past that was a huge HGTV fan. This person came to me offering to pay me for coaching to flip houses. When they kept mentioning the shows they watch, dropping actors’ names like they were family, I had to refuse to coach them. I only take on students that are truly open to feedback, criticism and are willing to put in the hours necessary to build their business. This person went on to follow the advice they gained from TV, put all their money into a house overbid at auction. They unknowingly purchased a second lien at auction, not aware of the first lien that remained in place. They ended up losing their entire savings jumping into something without taking the time to do the proper due diligence.
- Hire a good contractor: Cheapest is not always best. When looking for a contractor, pay close attention to reviews online, review their contract fully, do not pay them all upfront and ask for referrals to go look at their work. Luckily one of my good friends is a contractor, so I have hired him for all of my projects. He pays attention to the budget and does everything in his power to stay away from overages and/or change orders. I have seen other people pay their contractor 100% upfront just to have the contractor disappear on them. I have also seen contractors that just don’t take pride in their work causing the project to come out with bad sheetrock lines, crooked tiles, uneven flooring, paint overspray, and many other items that affect the resale of the home. Contractors need to show care in their work, they should care about impressing the person that hired them to obtain repeat work.
- Always have a contingency plan: We all hope the real estate market stays hot where houses sell in days with multiple offers. The reality is, what goes up, must come down. The market will eventually experience at least a correction where prices adjust downward. When you purchase a flip, property run numbers on multiple exit strategies. If your goal is to fix and flip the property, also look at the numbers as a rental just in case factors outside of your control occur. Every property I purchase has the ability to at least break even as a rental property, with the goal of profitability. If the market shifts to the point I will be unable to sell the property to either break even or profit I will have the ability to finish construction and bring in a well-qualified renter to cover the ongoing property costs until the market recovers.
What are the most common mistakes you have seen other people make when they try their own hand at house flipping? Can you share any stories?
The biggest mistake I see others make is designing a flip property to their personal likes. There was someone I talked with in the past that lost over $50,000.00 on their first flip. The loss was not uncured due to miscalculating the sell price or the buy price, it was from their choice in finishes from paint colors, floor choice, tile, countertops, etc.
The flip property provided this couple the ability to design their dream home. It turns out they pictured dark colors for their dream home. This made them pick out a dark countertop, dark floors, dark paint colors which when all put together made the house feel dreary, dark and small. They made a major mistake by not looking at the pictures of comparable sales in the area to see what the finishes looked like in houses that sold the fastest and for the highest dollar amount. Turns out buyers wanted more of a gray and white color scheme which was in style and very easy to accommodate. These lighter colors make the house feel more welcoming and more spacious.
A flip property should be to make a return on investment, it is not a place to take your personal color pallet and install it into another house. Give the consumers what they want, create a bidding war and make a significant return on investment.
Another common mistake is overpaying for finishes. I have seen people put marble tile in flips that do not require it, expensive built-in refrigerators, expensive tile or solid wood flooring. It is possible to spend too much on materials where the return on investment is diminished or worst case turned into a negative.
From your experience, what can be done to avoid those errors?
Look at other similar properties within the area that are listed and/or have sold. Pay close attention to the finishes used. Did they install a $30,000 refrigerator, did they add marble bathroom tile, did they install an expensive jetted tub in the master bath?
To secure a return on investment it is important to pay close attention to the budget and stick to it. A tile at $4.99 per square foot sounds cheap, but when you realize you need 1,200 square feet you just spent almost $6,000 on the product which doesn’t include any installation costs. You could very easily be over $12,000 by the time the tile is installed. When flipping it isn’t just the material cost, you are also paying installation and most likely removal of the old product. Your job as a business owner is to consider all costs and ensure you stick to the budget to stay profitable.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. 🙂
Schools are failing students these days teaching kids things they will never use, teachings that are outdated. Most schools don’t teach simple things like balancing a bank account, creating a budget, and how to start a company. We are basically wiring our youth to apply for a 9–5 job and gain the skills through that employer which in turn helps them go and get a better job to start the cycle all over again.
I believe school is important, but school should be teaching valid skills to help the student succeed beyond the classroom. If I could inspire a movement it would be the requirement of business classes where students create sample businesses where they learn how to run them, how to approach obstacles and shift the business to succeed through tough times. Now I understand not everyone wants to be a business owner, but let’s give each person that choice.
As a second class should be a life skills class where you balance bank accounts, incur expenses, see and learn the impacts of overleveraging yourselves, how loans work, how debt to income is calculated, and of course how to see your credit rating and how financial decisions impact that rating.
How can our readers further follow your work online?
This was very meaningful, thank you so much, and we wish you only continued success.