43: Brad Smotherman
Basically treating your mind like a garden. You wouldn’t let the weeds grow, you would cut them out, which is me getting rid of that negative material. Basically the daisies will grow at that point.
About This Episode
Brad got his real estate license at 17 and eventually found his way into flipping homes and investing. Today his team works on deals in over 20 states.
In this episode, Brad discusses building a team, how to scale your business, and why now is a unique opportunity to get started in real estate investing.
You can learn more about Brad at bradsmotherman.com
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JON: Hello and welcome to Shop Talk: The Real Estate Show. I'm Jon Forisha and joining me on this episode is Brad Smotherman, a real estate investor and host of the top 100 business podcast Investor Creator, where he teaches new and seasoned real estate investors how to grow their house flipping business. Brad, thanks for joining me.
BRAD: Great to be here. Appreciate you having me on.
JON: Absolutely. So let's just start at the top. How did you get started in real estate?
BRAD: Well, it's kind of funny. I don't know how this happened, but I woke up one day when I was 17 years old and decided to get my real estate license. And so between high school and college I got my real estate license, went into selling real estate and um, my, my entire goal with it was just to maybe make as much as I would bartending or waiting tables and begin to meet some good people. And that's what I did. Um, I found that, uh, selling real estate was a tough business as I'm sure most people out there know, especially starting out and being 18 years old at the time. I didn't have a big peer group that was buying real estate at the time, but I made a total of $1,800 my first six months and I have my 1099 from Keller Williams to prove it.
BRAD: So it's kind of a funny thing now I don't care how you budget, $1,800 doesn't pay the bills for six months regardless of age. But now I got picked up by a builder builder developer. He taught me new construction and development. I did that until 2008 when the crash happened. And then I went into accounting for a short time and realized I couldn't do that work. That's what I got my undergraduate degree in. And so I went back into selling real estate in fall of 2008 and now that was not great timing, but we made it work and I retired my real estate license in 2010 just to do the investing side.
JON: Wow. So full time investor now?
BRAD: Full time man. 10 years.
JON: So you were an agent while you were going to college.
JON: Was that difficult to balance that?
BRAD: It was, and there was a certain point where I seriously considered not graduating and just quitting school because, um, I had, I had decided to start doing lead generation online in 2006 and we got pretty good at it. And so, um, it would be pretty normal. Well for me to have days where I'd have between 10 and 15 buyer leads a day and it became really overwhelming. And so I was trying to do that and the full coursework in an accounting, which is not the easiest of a business subjects. And so I did kind of have a point where I had to decide what side of the crossroads am I going in. I ended up saying, well, let me scale back the sales side and, and finish my degree. And I'm glad I did that looking back. But, um, if someone had made the other choice, I certainly couldn't recommend them. I don't use my degree very much anymore. So yeah, it was a tough thing to, to, to do both, I would say.
JON: Yeah, I bet. So when you say investing, uh, for anyone who's new to the world of real estate, what exactly does that mean?
BRAD: Yeah, so, um, the thing about real estate, and one of the many things that I love about real estate is there's lots of different things that you can do if you're interested in this. It's the same thing on the agent side and the same thing on the investor side. So it's like if you're an agent and you can work a model home where you can deal with first time buyers or, or you can be a senior specialist or relocation specialist, all of these things. Well in the investing world it's kind of the same thing. You can be a home builder or you can be a fix and flip or you can do what's called wholesaling. What I do primarily is I buy a house and I sell it with owner financing. So we're basically buying creatively and with some kind of builtin financing usually for myself. And then I'm selling with owner financing. So we're getting a down payment, we're getting a note for the future, which I look at as retirement income. And we're getting cashflow from the notes. So it's very similar to a rental in terms of the, of the structure of cashflow that comes in each month. But there are some major differences. But in a nutshell, kind of a Birdsong 30,000 the above sort of view. That's what I do.
JON: Hmm. And so how did you say you actually got into investing?
BRAD: Well, I realized whenever I was going through 2009 and the beginnings of 2010 that, um, I wanted to have an income source that was not substantiated on my working. And so I saw that there were some rental guys that had, uh, I had done that and I was like, well, let me do something that is going to create and longterm sustainability outside in my own workforce, you know? And so that's what kind of gave me the idea. And I thought, well, I can, I'm not very good at, um, at having my foot in two different camps at the same time. So what was happening is in 2009, I was going to appointments and I was saying, well, I can buy it for this or I can list it for that and you can imagine what happened. I listed a lot of property but I didn't buy anything. And so, um, but then there were deals that I just couldn't make work when I listed it, but I could have maybe made work if I bought it. And so, um, long story short, I decided to retire the real estate license just because, uh, I wanted to be an investor and I didn't think that the agent side suited me.
JON: Sure. Yeah, that makes sense. So where are you located?
BRAD: So I'm based out of Nashville, Tennessee.
JON: Oh, Nashville, okay. I used to live there, was there for four years. Um, do you think it's possible to build the kind of business that you've built up anywhere or is it, is Nashville special?
BRAD: Well, I don't think Nashville is special. Nashville has had a lot of growth the past five to 10 years, but a lot of places have had that kind of growth. Um, and the thing is that most of my businesses outside of Nashville now, so we've bought and sold in roughly 20 States now, I don't know exactly how many now. Um, but that being said, um, I don't think that there's anything that, um, if you live in a normal place, and I'm saying normal outside of Beverly Hills where I'm sure the median price is over 3 million bucks or, uh, I would be a little bit hesitant about Flint, Michigan, assuming that the water problem hasn't been solved or something like that, you know, so outside of extenuating circumstances, the only thing that we really need to make the model work is population because population means houses.
BRAD: And so if we have population, we have a meeting in price that we like, um, then we can almost at will by equity positions that make me feel comfortable and safe and we're buying and selling property and make that work. Certainly.
JON: So you keep saying, we, how big is your team?
BRAD: I'm not a hundred percent sure. Um, because I'm pretty well delegated myself out of the investing side. So I have a controller, she has a basically a halftime bookkeeper. Um, a marketing person, a secretary, have a project manager, an acquisition person, a disposition person and a couple, two, three, four VAs. Wow. Something like that.
JON: Yeah, pretty good sized team now.
BRAD: Well it's, we're having a lot of fun.
JON: A lot of, a lot of the audience of this show are residential real estate agents.
JON: If they were interested in getting started down the path that you're on. How would you recommend they start that?
BRAD: Well, I think that first because the investment side is such a broad topic that you decide really what, what interests you. So, um, kind of an example of that. I have a friend of mine, friend of mine that's very handy and he enjoys construction. He really likes hands-on fixing, that kind of thing and does beautiful work, beautiful properties. I could be no farther from that. So I'm not handy. I don't enjoy that kind of stuff. And so doing the fix and flip model, even though I know what it's supposed to look like at the end, I'm not the best at like getting it to that point. Right. And so for me, I'm a really good marketer.
BRAD: I'm a really good negotiator. And so with that we're able to buy equity positions that are strong and then sell with our financing almost all the time as is. So we're not fixing the house. I'm not doing any of that. I'm certainly not Joanna Gaines and I hate shiplap so I'm not going to do any of that. So a great example of that, we bought a house one time, um, we're on the marketing to sell this house. We said, Hey, if it's raining today, you need to take your umbrella inside the house because you're going to need it. The roof was so bad that, I mean literally half this house where it had mold and those foundation problems, it was, it was a total disaster. But, uh, we ended up, ended up selling the house with owner financing. So, um, yeah, we're not fixing the and all that. So in terms of what should someone do first decide are you really committed to the business? Okay. Secondly, decided which route you want to go in terms of you want to be a rental guy, a fix and flip guy. You want on paper those different names. Okay. And then I, I really believe in the mentor mentee relationship. So find a mentor that has really been down that road that you want to go on and knows that path well because they can cut years off of your learning curve cause it's happened for me.
JON: Yeah. So could you talk about that a little? How did you find your mentor?
BRAD: Oh, that's pretty funny. So, um, in the investing world, there's a forum, I guess I'm assuming the biggest real estate forum online called BiggerPockets. And so, before Bigger Pockets I assume even existed, it certainly wasn't a thing if it did exist. There was a website called flipping homes.com and they had a form there as well. And so there was a guy in there that would talk about owning notes and creating financing and cashflow and all of these things. And things that were very cryptic to me, even though I was a real estate agent, I didn't really understand what the heck he was talking about. And so, um, one day I, I just private messaged him and I said, Hey, you know, I have this deal that's a potential, you know, what do you, what do you think about it? And he said, just call me this number.
BRAD: And I was just blown away because, I mean, this guy was on the REIA circuit at the time, the real estate investor association circuit as a speaker. And so I was thinking, man, I can't believe this guy gave me a cell phone number. But, uh, I talked to him, felt like, um, I'm assuming a normal person in Britain would Winston Churchill. So here's this bigger than life person that you know, I get to talk to now. Um, but he really took me under his wing and taught me a lot of what I know about deal structure. And so it really never is a big word. I was going to say, I never would have figured it out on my own. It's very possible. I wouldn't have. So I mean I really believe in the mentor mentee relationship.
JON: Yeah, that sounds really helpful. Especially with something like what you're doing where there is a bit of a learning curve. I mean it sounds like you have to have a pretty decent understanding of the finances behind it, which maybe not every residential agent does. Right?
BRAD: Yeah. And that's a hundred percent true with anything worth doing. There's a learning curve, so I'm a big believer of it's not difficult at first. You probably shouldn't be doing it in the first place, at least long term. Um, and real estate is a really wide and a really deep knowledge base. So you have to know about title and construction costs and sometimes structural issues and contract law, like all of these things that you have to be pretty student. And so it's really no different than real estate agents in that way. But what I do does have a twist to it and certainly it was not the easiest thing.
JON: Yeah. So going back to that house that you said had the terrible roof, how did you, who bought that? I mean, how did you actually sell that?
BRAD: Yeah, so it was kind of an interesting deal. Um, and I have a lot of those, but I'm just thinking through that. So this lady called me and she said, Hey, you know, I want to sell the house. And she gave me a number, and this is going to sound pretty silly, but this was in a pretty rural area and she had said she wanted $15,000 for it. Like, okay, so I go to the appointment, I'm waiting on her outside. I didn't go in the house. I knew it was vacant, but I don't want to go in houses without people. And her and her daughter came to the house. And so to put it in perspective, there was maybe a 1930s single family, two bedroom, one bath and it had a new vinyl, new windows. I mean from the outside it looked pretty good.
BRAD: But the roof look pretty rough and you know, we're negotiating outside. She wanted me to buy it without going in. And I said, ma'am, I appreciate you coming down from 15 down to seven but realistically I can't buy the house without seeing the inside. Like I'm right here. Can we just go through? And she said, yeah, but we're going to have to crawl through a window. I was like, well that's fine. So I'd go in the house and the first part of the half house is like, it's not bad, but had a weird smell. And then I go to the kitchen and it's like, it's just a complete mess. Like you can see the sub floor, there's no kitchen to speak of. There's mold everywhere and all this. And so I was like, well I understand now why you wouldn't want me to look at this.
BRAD: And she was like, well, just give me an offer. And this was back when I made offers. I don't make offers anymore, but I said, well, I don't know, I could probably do like two grades thinking that she, she meet me somewhere between two and seven. And she said, no, two's fine. And I was like, okay. So I signed it up to buy it and I'm marketing the house with owner financing and the person that bought it, um, I think he paid 25 for it with 5k down. So I made 3000 on the front end in cash and then a $22,000 note free and clear, uh, that had payments of roughly 500 a month for however many years that was. And so, um, but he was a construction guy and he had family in the area and he couldn't, he didn't have the cash to buy a house, usually under $50,000. There's no real bank financing in that area anyway. And so, um, you know, he was super happy to do the deal and he improved the collateral position and paid us off. But, um, yeah, it was a good deal. All around.
JON: $2,000 for a house.
BRAD: Yeah. That's I think the cheapest that I've ever, I think that's the cheapest I've ever bought. That's crazy.
JON: Wow. So, so that guy in that situation, he was able to pay off everything he owed you and then he owned the house.
BRAD: That's right. Well, he owned the house on the front end. So when I sell with owner financing, they own the property. I'm holding a note just like a bank would, but he ended up paying me off. Yeah.
JON: Wow. So what mistakes have you made in real estate investing? I imagine, I mean, we talked about the learning curve, I'm sure starting out there were all kinds of, Ooh, we should know that before.
BRAD: Oh yeah, for sure. The biggest mistake that I made was I'll give you the macro view and the micro view. Does that sound okay?
BRAD: So from, from the big picture perspective, I did not have belief to really invest in myself. So, um, it took me eight months to hit my first deal from the time I retired my real estate license. And, um, that eight months was riddled with frustration and doubt. And so, um, it was a really tough time, but I hit that first deal. But I had such a scarcity mentality that I was scared to spend the profit. So my first deal, I got 20,000 in cash and roughly a $20,000 note. That's where all 400 a month. Okay. So it was roughly 40,000 in profit my first transaction and Mmm, that 20,000 in cash had I really gone and marketed more, which brings me to the, the micro issue. So the macro perspective is I didn't have the belief system in place. I needed to work on my mindset from, from faith and not fear. Okay. From the micro perspective, I had a tough time because of the big picture issue investing in my marketing. And so, um, and the agency business is very similar. It's like it's a lead generation business. And so if you don't have marketing, you don't have lead generation, then you're effectively done.
BRAD: Because I'm marketing to create the same seller flow that an agent is. I need people that need to sell property, call me. Right. And so, um, those were the two biggest issues that I've made. Um, that costs me a lot of time, a lot of time, but, uh, luckily I can help other people from doing that now.
JON: Yeah. So how do you keep your motivation up, you know, while you're experiencing those kinds of hardships or things aren't going your way?
BRAD: That's a great question. So a couple of things. Um, I think it's really important to have a mentor. Secondly, I think it's important to have a really strong peer group. And so a lot of things that I see with, uh, people that I work with are that their peer group is really bringing them down. And sometimes that peer group you can't get away from because it's a spouse and that's a tough thing to deal with. Okay. Um, but having a peer group that is supportive and ideally a peer group that's a couple of steps ahead of you is going to be really important. Okay. Um, another thought is I think you have to focus on what you're thinking about. So thinking about what you're thinking about is going to really empower you to control your thought processes. Okay. So a couple of things that I do. I'll basically, a lot of people do fasting for diet. So like intermittent fasting is a big thing right now in terms of diet strategy. Um, I do mental fast so I won't, even though I'm from Nashville, I won't listen to any country music. Uh, cause you have to feed yourself positive material. So like I don't watch movies, I won't listen to any music. I'm listening to audio books that are positive and impactful. I'm listening to podcasts like this one, that that builds a belief in me cause other people are doing it.
BRAD: You know, because if you don't guard your mind, then you're going to have a tough time making good decisions. If you're watching, God forbid CNN and Fox news all day, you know. So that's, that's a few things that I would do is get a mentor, get a good peer group and focus on what you're thinking about.
JON: Hmm. So that last one, focusing on what you're thinking about in the place of all of those things that you otherwise could be wasting your time on, you're just focusing purely on your business and your mental health.
BRAD: I'm focusing on only allowing positive material through that filter and then I feel like if I'm doing that that the good things are going to come. So it's like kind of basically treating your mind like a garden and so you wouldn't let the weeds grow, you would cut them out, which is me getting rid of that negative material and uh, basically the daisies will grow at that point.
JON: Hmm. I like that. You mentioned that you buy and sell in 20 something states.
BRAD: Well not actively, but I bought roughly that many.
JON: So I imagine you're not actually in person for all of those.
BRAD: That would be correct.
JON: Given the current pandemic and quarantines over the last few months, many agents are having to figure out how to purchase real estate remotely. Uh, do you have any advice along those lines?
BRAD: So it's going to be loosely related because what we do is, is quite a bit different, although not completely, but quite a bit different. Um, I think you have to have a process that allows you to go from, you know, what would be to your audience from that point of contact with a seller or a buyer to getting that representation agreement signed without seeing them. And then having a plan for showings and negotiation as well without this kind of interaction.
BRAD: This is something that we have done in terms of purchasing and selling for awhile. So whenever we had the pandemic, I'm not gonna say it was business as usual because that's not the right word, but it wasn't that atypical. So, you know, it wasn't like we had to have some catastrophic shift in terms of, of pivot on what, what our policies are. And we had pretty much that plan in place already. But, um, yeah, you have to be, you have to have a plan for four contact to, to contract and negotiation all of that. Uh, so that you have a plan that is proven to be successful versus you winging it, winging it. And that's what I see a lot of people do. They don't have a plan and then it's, it's about how good they are. Like, look at us, I promise you I'm not good enough to wing it. And there are very few people that are, so you have to have script work and policies and procedures in place that are good. So it's not about you, it's about that policy, that procedure, that script. And if that's good enough, it's not about you.
JON: Hmm. So how do you plan? How far out do you plan? I should ask.
BRAD: Well, in terms of of my week, I spend some time, so I'll show you for those that aren't on video. So I have like my flashcards that I'll plan my day, I'll plan my week and then I'll have 60 day goals. So I keep those with me and pretty much everywhere I go. Um, I have 60 day goals that are obviously a little bit bigger. So what I've found is that people don't have, including myself and don't have the, uh, the mental fortitude to, to think about a goal for a year. So now new year's resolutions and all that, I think that that doesn't make sense. And so what I started to do is look at things quarterly and then I realized that even 90 days is a little bit too far from me. And so, and a lot of people have 90 day goals and I call it 90 day sprints.
BRAD: And all I've got to the point because I subscribed to that first and then I got to the point of, look, if all you're doing is sprinting, you're not running a marathon, you're, you're trying to sprint a marathon and that's exhausting. Like that's impossible. So what I'll do is I'll do 60 day sprints and then 30 day, uh, like kind of tone downs where on that 30 days we're doing a little bit of vacation time, like relaxing a little bit. But I'm also thinking about, okay, what's the next 60 day sprint? Based on what we accomplished. Okay. Cause I feel like people can have, uh, kind of the bandwidth mentally to look at 60 day goals, you know, and keep that. So, um, in terms of planning, I plan my week on Sunday. Um, I plan daily what my schedule is for that day and all of those are, are keeping in mind the 60 day goal.
JON: I like that shorter timeframe. Uh, I agree about new year's resolutions. They seem like, you're gonna forget about it for half the year and then you're gonna freak out that you failed.
BRAD: It's a tough thing mentally, man. Because like you start off like really excited January, February, maybe March, but then you get to September and you're like, I have no chance of meeting my goals. And you don't do anything for four months because you're thinking, well, January 1st I'll start over again. It's like you lose so much time that last quarter. I mean, that last quarter is just as impactful as the first quarter. It's just a mental game. So it's like, well, let's just switch the rules to do 60 days sprints.
JON: Hmm. Yeah. That makes a lot of sense. So would you say that now is a good time to get into investing?
BRAD: I think that what we have is, um, I hate to say the word opportunity because there's a lot of hurting people. So right now there's 30 million unemployed. Uh, roughly one in 14 houses are in forbearance. So meaning that they're not paying the mortgage payment actively, which means that there's probably even more that are behind them payments. And so it's a significant shift in the market in terms of what the economy going through because of this virus. Um, but with every problem there's equal opportunity. And so there's going to be a substantial amount of people that need real estate help. Now, whether they go to an agent or they go to a buyer like me is certainly up to them. But there's going to be a lot of opportunity on both sides. The next, I'd say Tootie, two issues.
JON: Yeah, definitely. So you've talked a lot about marketing. How do you actually get your name out there?
BRAD: Yeah, so it really depends. Um, but what I'll say is that I've seen shifts in marketing channels. So, uh, when I started, I put out those ugly, we buy houses, signs that you see on the side of the road. So like that was how that was kinda my entry point. Whenever I got to where I had a marketing budget, I started doing direct mail. So direct mail is my bread and butter for probably three years. And it got to the point where we were mailing about 70,000 letters a month. So we were doing a lot of direct mail across multiple States. And so, um, but it got to where that the effectiveness of that medium just completely collapsed. And so now a lot of what we do is online, but it's really market specific. So one of the things that, one of the things I'm looking at, if I'm looking at a market, you know, demographics of trending home prices and foreclosure rate, cash sales and all these things, Mmm. And those numbers is really going to make a difference in terms of how we market. So I bought in Pittsburgh, Pennsylvania, bought in Dallas. They're completely opposite markets in terms of what marketing strategies need to go. So the short answer is it depends.
JON: Hmm. And where do you get all that data?
BRAD: Well, CoreLogic is one of the main data sources for real estate. So I mean we can get most of that from CoreLogic.
JON: Interesting. All right, well this last question is when I ask all my guests, if you could go back to the beginning of your career and change one thing, what would it be?
BRAD: Belief without a doubt. Um, had I had a different belief system at the beginning that was rooted in abundance and faith instead of fear and lack, then I would have been far more successful a lot faster.
JON: Hmm. You are not the first guest to say that. That's really interesting. If only it was easier to believe in yourself and what you're, what you're doing when you're first starting out.
BRAD: Well, it's a job. It's a job. You got to realize that the job's there to begin with. So I mean, a lot of people don't even know that there's a game going on that they're losing. So we've got to realize we're in the game first.
JON: Hmm. All right, Brad. Well, if somebody wants to learn more about you and what you do, where can they go?
BRAD: Yeah, so I have a podcast Investor Creator on iTunes and the various other podcast sources, and for those that want to email me directly, it's firstname.lastname@example.org
JON: Fantastic. All right, Brad. Well, thank you so much for being a part of it.
BRAD: Thanks for having me.
JON: That's it for this episode. Thanks for listening. If you enjoyed the talk, you can subscribe to us on your podcast player of choice, and while you're there, you might as well leave us a great review. Shop Talk is a production of The CE shop.