597: Lighting Cars On Fire to Invest in Old Homes

February 14, 2022bmanasseroUncategorizedNo comments

SHOW NOTES FOR EPISODE 597: LIGHTING CARS ON FIRE TO INVEST IN OLD HOMES

How can a failed stand-up comedian, who lit his car on fire to raise money for his pre-foreclosure home, ever succeed in real estate? In this week’s podcast, failed comedian, philanthropist and real estate investor John Maxim shares how a starving student (himself) discovered a profitable niche that allowed him to invest in real estate by buying old homes.

What You Will Learn

How he accidentally became a real estate investor
Why working with a good mentor can be a good way to get started
How finding a unique niche (especially one no one else wants to do) can be extremely profitable
Why it is important to employ various real estate investing strategies
Tips and tricks to flip old houses and still make a great profit
Why it’s important to understand the people in the market you want to invest in
Where to find a continuous stream of good flipping deals
Why flipping is considered a young man’s game

About Our Guest

John Maxim

John Maxim is a self-made millionaire and hands-on expert house flipper who has fixed and flipped over $500 million of real estate–for profit, charity and the community.

He started his real estate empire by living under a stairwell: creating $1,000/month in passive income by renting out his home to 9 friends. Today, the 20-year real estate veteran has a massive portfolio and still flips 100 homes a year. From wholesaling to property management, nightly rentals, house flipping, mortgages, lending, commercial, residential — John has held almost every job in real estate. He has founded multiple 7-figure businesses and all the while using his success to give back. Maxim hosts bi-annual treasure hunts in Salt Lake City, burying $10,000 cash for winners. In his spare time, he flips homes for families in need, free of charge. John is a father of five, failed stand-up comic, hobby filmmaker and backyard beekeeper who has saved over 70 raccoons in the state of Utah!

More About John

He accidently got into real estate
He was a failed stand-up comedian and a film maker
He thought he would end up in the entertainment business, not real estate
While he was going to college in film school, he and a couple of his roommates decided to buy a house because it was cheaper than renting
They found a house that had a detached garage that was originally a one-car garage that was converted into a dance studio
John and his buddies thought, “Gee, we can put bunkbeds for us four in the garage and rent out the four bedrooms in the house to other students.”
John, however, wanted to maximize their income and decided to put a bed under the stair well, sleep there and rent out his bunk spot for $250 per month
There was nine guys living in the house
It was sort of an “unofficial frat house”
John donated plasma (sold his blood) and lived off of the rent they received
The house was known as a “party house”
That was his start in real estate

Getting Serious About Real Estate

At that point, John thought he would get his real estate license and really get serious about real estate investing
He got a job working as an assistant/agent to a Realtor for a year
He made a whole bunch of money
He thought he was pretty awesome because he made $80,000 and decided to quit to go on his own
He also stopped going to college

Things Take a Turn for the Worse

Working on his own, he only made a whopping $10,000 for the year
He realized that working with the experienced Realtor was what made him so successful before
He tried to make it as an agent, dabbled in mortgages
The market was also crashing at that time
He ended up divorced and things really took a turn for him for the worse
His house was went into foreclosure
He had become very good with loan modifications
- He knew how to push his mortgage off, and off, and off
- He wasn’t making good decisions
- And was not in a good place
- He got far behind on his mortgage
- A notice arrive that said the bank was going to sell the house at foreclosure the following Monday
John and his roommates were watching the movie “Hot Rod” where the protagonist attempts to jump 15 buses with his moped to raise money for his stepfather’s heart operation
He told his roommates they are going to auction the house off on Monday and everyone needs to move out
This gave him the idea to do a major stunt like in the movie to raise the money they needed
He decided to go on the Internet and say he is going to light his car (a station wagon) on fire. To watch him lite the car on fire, people had to pay $20 each. The money would be used to save his house for foreclosure
This before “Go Fund Me” so he had to organize the campaign on his own
It went viral and he ended raising over $20,000
He hadn’t slept in 3 days, got the money in a cashier’s check, took it to the courthouse steps auction, walked up to the attorney with the auction booklet and he started waving his check as he yelled, “Don’t sell my house!”
They hadn’t started the auction yet
The attorney checked the records, accepted the check and his loan was fully reinstated
He looked around at the 18-20 young guys standing there at the courthouse steps ready to bid on foreclosed houses with hundreds of thousands of dollars
As he looked at these guys who were making a living doing this, that was his “lightbulb moment” and thought, “Theses are my people!”
FYI: He did have to spend a weekend in jail for lighting his car on fire for violating various local laws

Finding His Niche

After seeing all those young guys at the courthouse steps to buy foreclosures, he decided to learn all he could about how and what they were doing
If he wouldn’t have hit rock bottom, he wouldn’t have discovered the niche that would make him a multimillionaire
He knew a guy, who wasn’t at the courthouse steps that day that also does that for a living
His friend told John to go to some REIA meetings and he did
He also watched hours of YouTube videos on the subject, blog posts and other
He later found a mentor who also helped him
His mentor partnered with John on his first flip
That first flip only yielded him $6,000 after 7 months
That house was over 100 years old
He realized that they went way overboard on that flip because of the age of the house
On his next flip, which he did without a partner, he made $30,000
“In real estate, in your market, your reputation becomes what you do,” said John
He lives in a very old section of Salt Lake City called the Marmalade District – all of the homes were built in the 1880’s
His own house is an old house (the one he lit the car on fire for)
His first house was an old house
He started getting more comfortable with flipping old houses
Wholesalers began to call John the “Old House Guy”
Other buyers were overwhelmed at the costs to repair old houses
Soon people are referring old houses to him on a regular basis
It took 4 or 5 years before people would start referring to him as a specialist in old houses

Rehabbing Old Houses

One of the first things he does, after purchasing an old house. (unless it was previously upgraded) is to replace the electrical and the HVAC
Plumbing is a little different
- There’s a lot of galvanized plumbing and it can become a problem – but it isn’t always
- You have to just take it as it comes
- A lot of guys will come in and immediately replace all the cast iron drains, dig up the cement
  - Cast iron actually holds up very well, as long as it was installed correctly
  - There’s things you can do to line, preserve and protect them so that they can last another 50 years
- He doesn’t just come in and change everything right away
- He takes a look and goes from there
Most electrical has already been re-done and updated (maybe in the 70s or 80s) on older homes
- So, as long as he’s not seeing knob and tube, then he’s OK
He doesn’t go all the way on mechanicals unless he has too
As it is, he is:
- Putting in new kitchens
- Add new breaker boxes, if needed
In half of his homes he’s forced to re-do THE BIG THREE mechanicals
The way you make money on the old houses is knowing what you don’t have to do to re-sell it and learning to restrain yourself if it is not required
He usually lets the buyers guide him
- He’s done enough real estate to know what the buyers want
  - There’s different types of buyer
    - There’s buyers who want a brand new house on the outskirts of town
    - There’s buyers who want that old Victorian restored to it’s original glory
    - They want the charm of the old home:
      - The thick baseboards
      - The archways
      - The high ceilings
      - The exposed bricks
  - They don’t want the function of the old
  - There aren’t many purists who want the
    - Tiny kitchen
    - 6 fireplaces
  - They still want
    - Open concepts
    - Big modern kitchens
    - There is a balance between the function and the charm
      - He always tries to marry those two things
        
        He upgrades the kitchens and the bathrooms
        
        Because most people want the modern function
  - But they don’t want
    - Copper tubs or
    - Gravity flow toilets
Most flippers shy away from old houses because they want a “cookie cutter” rehab on each house
For older homes, the rehab has to be evaluated on a case-by-case basis – they all are custom
Based on comparables, past experience and research you do on other flips, it’s pretty easy to determine what a house will need
- Certain neighborhoods have a certain kind of buyer that requires certain things
  - For example, 30 miles north of him is a town called Ogden, UT
    - Lighter market
    - Not as expensive as Salt Lake
    - But very similar
    - In downtown Salt Lake City, he has flipped many houses where they don’t need to level the floors
      - They could be crooked, slope to them, a dresser may lean forward
      - Buyers there are OK with that
      - They would prefer the historic and the charm
      - It costs a lot of money to level a floor
    - He did his first historic home in Oden and, because it was a cheaper and softer market, he figured he could get by without leveling the floors
      - Ogden buyers were not OK with that
      - They don’t care as much for the “charm” aspect
      - After putting it on the market for 4 months, he ended up going in to level the floors out
      - So now, he knows when he does a home in Orden that he has to always level the floors
He loves old homes but he also needs to make a profit
- For example, with original floors and hardwoods, you can restore them for $2.50 a square foot
  - If you bring in LVP or laminate, it will cost you a minimum of $3 per sq. ft.
  - The only thing cheaper is carpet but you can’t just throw carpet anywhere
  - He refinishes floors a lot
  - That buyer who loves old homes loves refinished floors
  - Sometimes he’ll put carpets in bedrooms, unless they a beautiful wood floor
  - He tries to keep wood in the hallways and rest of the house

Out-of-State Flips

For a couple years, he tried flipping homes in other areas like Dallas, Connecticut, Arizona, California and Oregon
But he realized he’s not that kind of investor
You need to be very organized to manage out-of-state flips and you need a solid out-of-state team
He ended up leaving a lot of money on the table with those flips
He recently flipped homes in Las Vegas and San Diego but he had partners that served as his “boots on the ground”
Normally, he likes to be within 40 minutes from the flip

Other Investing Strategies

When he does have time for a deal but likes the house, he’ll wholesale the deal
His bio mentions he flips 100 houses a year
50% of those deals are wholesaled out
In 2017-2018, almost all the houses he flip were from wholesalers
As the market changed and houses were going up in price, he thought he was paying too much
Then, he dealt more with deals on the MLS or direct-to-seller deals
Right now, out of the 22 deals in process, only one is from a wholesaler
John also has rental properties
- As he is getting older and now has five kids, he sees cash flow as a better avenue for him
- He has been turning more of his deals into long-term rentals
He also flips/wholesales commercial properties
- If he can’t wholesale the property, he will do what’s called “lightboxing” where they demo it inside, spray everything white on the inside and sell it to developers or other people
- He has one he has held onto for three years where he’s renting out parking space
- It’s now under contract and he plans to make “more money than we should”
- He loves looking for deals
- He hops on Loopnet.com to see if there is anything interesting
- Last year, industrial commercial was one of the hottest areas because there was a lot on “repurposing” going on

Deal Flow

He gets his deals from a number of sources
- Calling agents
- Calling wholesalers
- Calling investors
- Marketing with DealMachine
- Direct mail
- MLS
You need to hit each source a little every day
- You don’t want to neglect any of your “tributaries” to your deal flow
- He spends at least an hour a day hitting his sources
Sources change with the market
The key to success is to change with the market

Biggest Mistake

He was once introduced as a speaker at an event as “The guy is Salt Lake who has failed the most”
But he’s actually proud of it
One of his biggest skills is his ability to take “massive imperfect action”
- Where he will jump in, bite off more than he can chew but chew it anyway
- That’s where his biggest failures have come out of over-extending himself
- He has the tendency to take on more and more deals that should only take 4 to 6 months to complete but, because of the volume, take 18 months
  - And, of course, “interest never sleeps”
- He remembers, in the last 2 years, having 47 homes at once
  - He remembers waking up after closing on home 47, in a cold sweat, realizing he was paying $9,000 a day in interest for that inventory
  - It got very scary
  - And it was all because he over-extended himself
What he learned: Sometimes, the more success you have, the more you think you can do but that is not always the case

Biggest Success

His biggest mistake is also related to his biggest success – the ability to take massive imperfect action
He doesn’t have a lot of fear – he has been on the bottom
In 2007, he made a million dollars doing spec homes
In 2008 and 2009, he lost much more than a million dollars
The Great Recession really hit him hard
But through that experience, he found the opportunity to bounce back
Looking back, it never looks as bad as it felt when you were in the middle of it all
You can come out of it and not just recover but thrive
He lost his fear
He bought a fourplex that he had no reason buying
- He had to beg and plead to borrow the money for it
- He ended up borrowing the money at 20%
- He had to pay retail to get it done, but he knew it had potential, even though on paper it didn’t make any sense
- He still owns it today
- He did a cash-out re-finance
- It cash flows great
- It ended up being a great deal
- He will probably never sell it
Taking action when he feels good about a deal has been his biggest success

Advice for Old Dawgs Looking at Real Estate Investing to Help Them in Their Retirement Years

Don’t spend a fortune on a seminar or training
A lot of people in their 50s-60s who have a lot of money can get caught up in a guru’s pitch and end up spending $40K or more on an education program
What they really need to do is take massive action
In those programs, a lot of people go into analysis paralysis where they are trying to do everything perfect because this is their nest egg
The first thing you need to do is KNOW WHO YOU ARE
Everyone thinks they are going to be a flipper – they see it on HGTV and it looks easy and fun
But, in reality, flipping is hard!
- It’s a lot of physical work
- And the less work you do, the more you’ll have to pay for someone else to do that work
  - You can hire a contractor and find out at the end of it all that you have no money because he took it all!
John is approaching his 50s and he will be doing less and less – it’s a young man’s game!
People who have the money should be looking at PASSIVE INCOME so you can make your money WORK FOR YOU
- Consider becoming a private lender – especially if you have a pretty sizable nest egg
- John regularly pays 10-12% for the money they borrow from private lenders all the time
- It is not a risky thing like the stock market or crypto currency
- It is secured by real estate
- If the borrower defaults, you will own the property
- Don’t lend to just anyone
  - Find people who have done it for a while, have a good track record and have been successful at it
  - Some flippers can involve you in the project so you can learn how to flip and see how it is done
- You’ll need a good real estate attorney, title company and maybe a company who can bill and collect from the borrower

Current Business

He’s very happy and he wants to stay that way
He has found something he really loves – flipping homes, teaching people how to do it
He sees his future being less flipping and more passive income properties
He started his own property management company that does both short and long-term rentals
He sees a shift from less active to more passive investing

Giving Back

The more successful people become, the more they will want to give back
John has found great joy in helping others in a number of ways:
- CHRISTMAS FLIP – At Christmas time, he finds a family and will flip/rehab their house for them
  - It started with just doing a kitchen, bathroom or basement to doing an entire house
  - Most recently, they found a family that had 2 deaths during the year
    - They gave them a trip to Mexico and, when they came back, their entire house was completely remodeled – all in 6 days
- TREASURE HUNT
  - During the pandemic a lot of people were locked up in their houses
  - People were depressed
  - John and a friend were getting stimulus checks they they really didn’t even need
  - So they had this idea of having a buried treasure hunt, with clues and everything, where people could find a treasure consisting of $5,000-20,000 in cash
  - The first one took 3 days to find
  - They have done 5 so far
  - The last one was $20,000 and 15,000 people took part in it

Rap-It-Up

Favorite real estate book: Rich Dad Poor Dad by Robert Kiyosaki
Favorite business book: How to Win Friends and Influence People by Dale Carnegie
Most valuable web site for success (other than your own): YouTube.com
Favorite app: YouTube.com
Favorite quote: “Try not. Do or do not. There is no try.” – Master Yoda from Star Wars
If you lost everything – all your assets – and had to start all over, knowing what you already know, and you only had $1,000, what would you do to re-launch your real estate investing business? Your network is your net worth. I would join and start going to REIA meetings ($100). I would identify the real players at those meetings and see if I could take them to lunch or coffee. And I would start working with the people who were doing the business.

How to Reach John

Instagram: @OntheJohn – DM him
His YouTube channel – JohnMaximFlippingOff
Email: John@UtahFlipper.com

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