Robert Leonard 1:05
There’s quite a few different things I want to talk about during our episode today. But let’s start with your background and your story. How’d you get to where you are today?

Mark Ferguson 1:13
I’ll try and be to the point. It took a while, but I started out, when I grew up. My dad was a real estate agent. So from the time I can have my first memories, I remember going to showings with him, sleeping under his desk in the office, and just being completely involved in real estate. And as I grew up and got into high school, I wanted nothing to do with it. I didn’t want to be a part of it. I wanted to do my own thing. And I ended up going to the University of Colorado to get a civil engineering degree. I did that one year; hated high level math; went into business; got a finance degree; graduated; and I couldn’t find an amazing job that paid me more money than I was worth around at college. So I went back to my dad and said, “Hey, I’ll just work part time for you for a little bit.” So I just kind of did random things, mostly manual labor. And then, eventually I saw him doing all this real estate stuff. I said, “Okay, I’ll get my real estate license.” Got my license, and then, he would flip houses once in a while, too. And so I really started to get intrigued about real estate after seeing how you could flip houses and how much money you could make as an agent without being tied down to a corporate structure; without really having a boss or set hours. And from that point forward, I was kind of hooked. And so really, it took me a while three or four years to find success. But once I really started committing to the business, figuring out you had to work hard, not just show up. I started listing foreclosures, getting in with banks, and my career kind of took off from there. Then, my investing took off and kind of fast forward got to where I am now.

Robert Leonard 2:45
What made you want to start with those foreclosures and those bank REOs?

Mark Ferguson 2:50
It was random luck. So I wish I could say I had some amazing insight, but I was actually on my computer, and I got an email from some company that said, “Hey, do you want to do a BPO?” I didn’t know what a BPO was. This was like 2006, in that range. And I looked it up, it’s a broker price opinion. It’s like, kind of like an appraisal, but not as detailed, and agents can do them. And then, they’re like, “Hey, we’ll pay you 50 bucks to do this BPO. It will take you like an hour.” I’m like, “Okay!’ And they faxed me the information, which was crazy because even back then, you know, faxes we’re going out. But I did one BPO; got paid 50 bucks. I’m like, “Man, I really need to look into this more.” And so, I looked into BPOs, and I looked into REOs. I’m like, “Hey, BPOs can lead to actual listings. You can work with banks,” and those suited my personality, so much better ’cause I’m not really an outgoing person. I’m more of an introvert, even though I’ve got YouTube and all kinds of other stuff going on. And I started cold calling banks; just calling up random banks to see how I could list them. I got lucky with a few, and they told me where to sign up. And then things just started happening, you know, month after month. And one point, where we sold 200 houses in one year. So it’s kind of crazy.

Robert Leonard 3:56
What was it like selling those types of houses ’cause, I mean in general your foreclosed properties aren’t generally in the best condition. And, you know, sometimes those can be hard to sell. I know I’ve looked at some, you know, REO properties that have been on the market for a very long time. So that can be demoralizing as a real estate agent, so what was that like for you?

Mark Ferguson 4:12
Really, it’s completely different than normal real estate work because you are not just an agent, but you’re the property manager as well. Because basically, what they do is they send you an email that you have an assignment. You have 24 hours to go visit the house; see if it’s vacant. And if it’s not vacant, you’ve got to talk to those people, who just got foreclosed on. Try and offer them cash for keys, which is money to move out. Possibly go through an eviction and manage that for the bank, then you’ve got to possibly manage repairing the house getting contractors in their trash out rekey; then you list it. So by the time you get to listing it, it’s kind of like, “Wow, most of our work is done.” But yes, it can be frustrating because sometimes the banks want to list it for more than it’s worth, or you have an appraiser who comes in who doesn’t value it correctly, and there can be some, you know, drama there between all the parties. But overall, you know, we did a pretty good job of selling properties; getting them sold right away. And if we could kind of show our case for why a property is worth what it’s worth, we’d have good luck selling it. So really the work of an REO agent is before it’s actually listed. And then of course, if you get 37 offers on one house that can be a lot of work to because you’re submitting every single one of those offers to the bank. But you know, it was a lot of fun. It could be stressful ’cause those timeframes like if you miss a deadline, they’ll move on to the next agent, and they could fire you just for one miss. So it’s kind of crazy.

Robert Leonard 5:31
Are you getting paid for all those things you do before the sale of the property? Or does it work the same way as like a traditional sale, when you just get paid a commission?

Mark Ferguson 5:39
You get paid nothing. You know, see the REO agent? They’re making all this money, and it’s so amazing. But a lot of times we’re fronting the expenses. So I spent $10,000 to fix up a house before for the bank, and then submitting invoices, and hoping they pay me back. Now, they usually do. But what I always thought was funny is I’d have to sign up for their invoice management software. They charge me fees to get an invoice from them after I fronted $10,000 to do the work for them. So like, “Really? I have to pay a fee to get my money back after doing this?” So no, we don’t get paid for the BPO if it’s our own listing. We only get that commission at the very end. And a lot of times those commissions are reduced, you know? Not, you know, what some people might say is a full commission. There’s no set commission. They’re all negotiable. But the banks will often pay less than you think on those commissions.

Robert Leonard 6:27
That’s really, really interesting. How does the bank decide which agent they’re gonna go with? I mean, I’m sure like you said they probably get a bunch of different offers, so how did they decide?

Mark Ferguson 6:36
It’s a lot of relationships. So once you get in good with a bank, and you’re in a certain area, they’ll usually stick with a couple agents or even one, depending on how much work they have. So it’s all about getting in with them, getting your shot, and doing a really awesome job. And it’s–some of its luck, you know? Some of it’s just persistence. It’s kind of a fine line between bugging the banks, and you know, contacting them; letting them know who you are. And a lot of it is experience, you know? If you can say, “Hey, I’ve listed, you know, with ten different companies. Here’s my results. Give me a try,” that really helps, but really it’s just kind of getting your name in different systems. I belong to a number of groups like the National REO Brokers Association, US REO Partners, REO Network, and that networking with other agents helps too because those agents can put a good word in for you, which is almost more important than anything you can do yourself.

Robert Leonard 7:27
Now, do you get first dibs on those properties if you walk into one, and you decide you want it? So is that a potential benefit of doing that as a, as an investor and an agent?

Mark Ferguson 7:36
You know, I thought that would be one of the biggest perks of being an REO agent. And then, when I got in the business that is like the biggest no-no ever. So they are very clear–you cannot buy your own listings. It is a massive conflict of interest because then, you might price it lower; you might try to get your offer in before other brokers. So you are not allowed to buy your own properties. In fact, as a HUD listing broker, and I couldn’t buy any HUD homes. Doesn’t matter if it was my listing or someone else. Nobody in my office could buy a HUD home; none of my family could buy a HUD home. It’s just all prohibited because they did not want any conflict of interest. So it actually hurt you as an investor, buying foreclosures.

Robert Leonard 8:17
Wow, that is not what I expected. I certainly would have expected that because to me, it seems like, I mean, I understand the conflict of interest that it could be there. But it seems like for the bank, it almost seems like if you have an agent that’s ready to buy the property, they don’t have to do anything. They can save a ton of costs on their side between administrative costs and then, like you said, fixing up the property dealing with any other issues that are there. You have an agent or an investor that’s ready to just take that off your hands. For me, it seems like that cost; that opportunity cost for the bank is well worth it to just sell it to the agent.

Mark Ferguson 8:47
Right? And well, the banks, in the very beginning of the housing crash,  they would sell properties right away. Get them off the books, but towards the end, I think they realized, “Hey, we’re losing so much money by not selling for market value.” And that’s when they kind of wanted this process of market properties had to be on the market for five days before they looked at an offer. None of our listing agents can do it. You know, they were very strict in all their processes on how they sold houses because they didn’t want any kind of shenanigans between agents, or you know, having low values to get good deals, and then they’re losing 50 grand on one house. A lot of people assume foreclosures are just these awesome deals. But in fact, I mean, I can get better deals myself on other properties. So you know, we’ve bought what 75 flips the last three years or so? And I think three of them are foreclosures.

Robert Leonard 9:38
With all of these downsides to being that agent for those types of properties, why did you want to do it?

Mark Ferguson 9:43
Well, I wouldn’t say it was horrible because we sold 200 houses a few years in a row. And working with certain companies were better than others. So you know, you kind of had to pick and choose the right banks to work with; the ones who, you know, maybe paid more or had their own companies that rehab the houses. You see all kinds of different things. And actually working for HUD, which is a government agency, was the best gig I had, which you wouldn’t expect. But they paid the most. They had probably–their company did all the work. You didn’t have to handle that part. And then, they had an online bidding system, so we didn’t have to submit offers either. So HUD had their systems down. Once you got in them with them, it was great. You still had to do inspections every week. We had to drive by the houses, sign in, take pictures, and make sure it’s in good shape. But, you know, once you figure out the system and how it works, it can be a great business. It’s just going in expecting, it’s not going to be a walk in the park and a piece of cake.

Robert Leonard 10:38
So let’s talk about an often debated topic that we’ve kind of touched on here about whether someone should get their real estate license to help their investing or not. As the managing broker and owner of a real estate brokerage, do you think investors should get their real estate licenses?

Mark Ferguson 10:53
I am a huge proponent of getting your license. Now, I know a lot of people disagree with me. In fact, I, I even had a question for the Real Estate Commission on a legal issue. I think it’s on advertising or something. And I called our local Real Estate Commission in Colorado and said, “Hey, you know, what do you think about this situation?” And he said, “If you’re an investor, you shouldn’t be an agent. That’s just horrible.” I’m like, “Really? That’s weird.” But anyway, so a lot of people have this, you know, misconception that you have more liability, and you have, you know, higher levels of ethics to stand up to, and they’re right. And I have no problem with that, you know? I’m like, “Why should it be an issue that I have to have good ethics, you know, if I’m an agent?” So there is more disclosure. So some of the downsides first, you know? If I try and buy a property that’s off market; it’s not listed, I have to disclose I’m an agent. I have to disclose I might make money on it, you know? I’m very clear that I might profit from it. I might sell it quickly, and I have to be upfront with them. And if you do it in the right way, that can be an advantage. I can say, “Hey, look! You can look me up on the Colorado website. I’m licensed. I’ve been licensed for 15 years. I’m not going to just disappear and rip you off. You can file a complaint against me if I do something horrible,” and that can build rapport with sellers. And at the same time as you’re doing that, you know, if I’m buying houses from the MLS, the multiple listing service, where, you know, most houses are listed, I earn a commission as the agent.

So if I buy a $200,000 house, I might make $5000-6,000 on the commission, which means I can pay less money than other investors, who aren’t licensed and still make the same amount of money. So that gets me more deals. Plus, I think the exact number was like $280,000 we saved last year in commissions alone from selling our flips; from buying flips; from buying rentals in commission coming back to us because as an agent. So to me, it’s a no brainer. And the other advantage is I have access to the MLS, where I can look up sold comparable properties. I can have all this access to data that the public doesn’t have as well. So I have more access to data, make more money on commissions, and get more deals. The only downside is I have to be more ethical and disclose more. So to me, it’s a no brainer.

Robert Leonard 13:06
Have you lost any deals because of those disclosures they have to give to the sellers?

Mark Ferguson 13:11
I have not. I have never had a seller say, “Oh, I don’t want to sign this,” because I’m not trying to rob old ladies of their houses, you know? We’re very clear. We don’t pay full market value ’cause we have to make money; we’re making a profit. Even if we’re holding it as a rental, you know, you will make more money listing this house in most cases. However, we can buy it faster. You don’t have to make repairs. You don’t have to pay commissions, you know? You don’t have to go through the hassle of selling, and some people want to list them. And in some cases, we can help them do that, too. So it’s okay, we can also make money as agents. In other cases, they don’t want the hassle, or some people just hate agents, for whatever reason, even if they know they’re losing 20 grand on the deal. They don’t want to use an agent. They’ll just sell it directly. So there’s always those deals that will work off market, whether you’re an agent or not. I’ve never had a seller say, “Oh, I’m not going to sign this.” How can you make money off this deal?Because I tell them upront, “I’m going to.”

Robert Leonard 14:01
Yeah, I mean, every situation is different, right? Some people, they need the cash right away. And that’s their problem. They don’t need to get necessarily top dollar. Maybe they, you know, maybe their properties paid off, and the $10,000-15,000 that you’re going to give them less, maybe that’s not as big of a deal to them. Whereas somebody, maybe they just need–they’re selling it; they’re going to buy their next house; and they need the money for that. And they can take the time to do it. So I think your points are absolutely true there.

Mark Ferguson 14:24
No, and a lot of people, you know? They have houses that need work or have problems like they just don’t want it. They want it gone. It’s like an emotional release to get rid of that house, and the sooner the better. And that’s more important to them than getting top dollar.

Robert Leonard 14:39
Yeah, for me, I’m actually a licensed real estate agent as well. I don’t practice. I don’t necessarily plan to anytime soon, but I got it for my real estate investing. I use it to, you know, in the same ways that you said, you know, save commissions and get access to information. And it also, I think it proves that you have credibility, I think, as an investor. So when you’re submitting an offer, yeah, maybe some people might look on those disclosures poorly, but I think some people might look on it, and say, “Okay, he knows real estate, you know? There’s a point of credibility there. And that could give your offer a leg up too.” So, yeah, I definitely think it’s something interesting that people should consider.

Mark Ferguson 15:12
Oh, yeah, completely agree.

Robert Leonard 15:14
So you’ve sold over 1000 houses, flipped over 180 houses, and you have more than 25 rentals, where do you think new investors should start? And as an agent, as a house flipper, maybe a rental property investor, where should they begin?

Mark Ferguson 15:29
This is kind of a contrary opinion to what is going on right now. But for most people, I tell them buy a house, and it doesn’t even have to be an investment property. You know, there’s this big push now to rent where you live, own, you know, rental properties, but a lot of people don’t have 20% down, right? You know, when you’re buying an investment property almost always takes 20% down unless you’re, you know, doing seller financing or partnering, which can be very difficult as a beginner. And one of the best ways to get into real estate is to buy as an owner occupant. You can put 3 1/2% down with FHA; 3% down with conventional; zero with USDA or VA. I mean, get down payment assistance if you don’t have a whole lot of money. And once you have that house, you know, there’s no reason you can’t get a really good deal just like an investor would. So like we’re talking about HUD homes. HUD gives owner occupants priority to buy their houses before any investor. So does Fannie Mae; so does Chase; so does Bank of America–all these foreclosures. They lock you out of this notion, “Well, I’m a, I’m an owner, and I can’t get a good deal and an investor can.” You can. Now you might not be able to buy that house that needs 100 grand, and work, and is gutted.

But you can get that house that needs paint or carpet and still can qualify for a loan. HUD has an escrow program that will finance, know, $5,000 worth of repairs or less. So you can go get that good deal. You know, pay 100 grand for a house, or you know, 500 depending on the market you’re in, and walk into 10, 20, 30% equity right away. And then, you can–you have multiple routes. You usually have to live there a year as an owner occupant, so live there a year. After that year’s up, you can rent it. You can start your portfolio with that rental property; move out; bought right in the beginning; and figured numbers right, you should be able to cash flow. You could live there two years. Fix it up, sell it, and your profits tax-free in most cases because of the capital gain, you know, tax-free rule in the United States, which I think is the best tax rule ever made.

There’s such a huge advantage to buying as an owner occupant. You should not discount it. You can build equity. You know, I bought my first rental because I bought a foreclosure as my personal house. A year later refinanced it. Took 50,000 more out than I had into it; use that money to buy my first rental property. And a lot of people say, “Oh, you lose all this money buying sort of renting,” and they don’t know how to buy the right way in my opinion, when they say that. So buying a house to live in can be one of the best ways to start. And I’m also kind of against doing the work yourself on houses. I don’t do any of it now. However, if you buy a house to live in, I think that can be one exception, where it does make sense ’cause you’re there. You know, if you’re doing some work, you’re still with your family. You’re not, you know, spending weeks at a different house. You’re not under a time crunch to get this flip done in six weeks. So you can save a lot of money in that route, too. So yes, being an agent can be great; buying rentals can be great; flipping houses can be great. But if you’re just starting out, you know, it doesn’t hurt to buy a house, and get a really good deal on it to live in as well.

Robert Leonard 18:18
Yeah, I completely agree with that. And I have a lot of people that reach out to me, and ask what I think they should do for their strategy. And oftentimes, I’ll recommend something like a house hack or something along those lines. But if they have a family. A lot of times, either their wife or husband isn’t willing to do that. And so, then I tell them exactly what you just said is, buy a property exactly like you said. And I think the key there is you just need to make sure you run the numbers, and that it’ll make sense as a rental. I think that’s the biggest thing, but it’s definitely a good way to get started. Do you think house hacking is another good way to get started?

Mark Ferguson 18:47
Oh, for sure. I was gonna mention house hacking, and I forgot, so I’m glad you brought it up. But you know, that’s one thing. When I started out in the beginning, I bought a house full retail. Did it the wrong way; still was, you know, worked out okay. But yeah, if I could start over again–buy a multiproperty; rent out part of it; even buy a single family home and rent out my basement. That’s what my nephew is doing right now. That is a great way to get started ’cause I think the biggest advantage with house hacking is it you start collecting rent right away. So when you go to buy another house, the bank might be like, “Oh, you have two houses. And this first one, you want to keep like it’s vacant! Oh, sure. You just rented it. But it’s like been rented for a month. We’re not, you know, gonna qualify you for a second house.” But if you’ve been house hacking; you’ve been renting it for a year; you’ve got that income. It might show up on your taxes already. It’s so much easier to qualify for that second house if you’re renting your first one from the very beginning.

Robert Leonard 19:36
Yeah, that’s exactly how I got started. I actually house hacked my first property, and then, I eventually sold that. And then, my second property was a live-and flip for exactly the same reason you said. I mean, it wasn’t a major reno, you know? I mean, it needed some paint, carpet, you know, some exterior landscaping, but for me, those were super easy deals to just get into a 3 1/2% down. And now, when I move out of this property, it’ll be, you know, a cash flowing rental property, and then I can move onto something else.

Mark Ferguson 20:01
Yep, no. Great strategy. And then, people don’t realize that’s another misconception. It’s like, “Oh, housing prices only go up 3 or 5% a year.” And that can be true, but when you’re putting 3% down, you’re controlling like a $200,000 property with $7000-10,000 with closing costs. So if it goes up 10%, you know, you more than doubled your money. You know, leverage is such an amazing tool with real estate.

Robert Leonard 20:26
Yeah, that power of leverage. It’s incredible. That’s something that real estate has that not a lot of other asset classes, you know, can take advantage of like the stock market. Things like that.

Mark Ferguson 20:35
Exactly.

Robert Leonard 20:37
In a market that is, you know, arguably expensive. I think a lot of people would agree that generally across the US markets are pretty expensive right now. How do you find undervalued properties, whether it be for a flip or a rental?

Mark Ferguson 20:49
I think a lot of people say, “Oh, you can’t find a deal now.” And they’re basing that on the fact that there aren’t that many foreclosures, and how easy it was to get deals after the housing crash. So I agree. It is much tougher to get deals now than after the housing crash. But it was much tougher to get deals before the housing crash in the last 30 years prior to that, too. And there are still real estate investors that entire time. And some people got spoiled, I think, because there were so many foreclosures. But like I said earlier, no matter what market you’re in, you’re going to be able to find deals. And sure they might not be as cheap as they were 10 years ago. But you base a deal of what market value is now, not what it was 10 years ago. So for flipping houses, you know, you base what your discount is based off current prices. You’re getting a rental, you know, you base your cash flow off what current rentals are. And it can be tough, especially with rentals to cash flow now because prices have gone up a lot higher than rental property. Rents have gone up, and I found that in my area, too. I think we’ll talk about that. But that’s why I switched to commercial rentals. So for flips, you know, it’s all about just figuring out how to get that deal and really diversifying how you find deals. So we’ll buy deals from wholesalers, the MLS, auctions sometimes; sometimes we do our own marketing; driving for dollars. All types of ways for sale by owner, Zillow, even Facebook, we bought a property on before. So it’s just diversifying and really systematizing how you find those deals. And there will always be deals in any market. And a lot of times I hear people say, “Oh, I can’t get deals in my market. It’s impossible. And all the other investors are buying them first.” It’s like, “Well, obviously there’s deals. Other investors are buying them. You just need to make sure you’re the one who’s getting those deals before them or figuring out how they’re doing it.” So you can get a deal in any market. It’s just a matter of knowing values, knowing the ways to get that deal, and knowing your numbers.

Robert Leonard 22:32
That’s the key. I mean, there is always deals. There will always be deals. I agree. I mean, I think that the market is expensive, but it’s just not as easy as it once was, you know? It’s not like you’re going to be able to go on the MLS, or you’re going to go onto Zillow, and find 10 different deals that you could buy ,and you’re going to cash flow $200-250 a door, right? You’re gonna have to put in a lot of work. You might have to drive for dollars. You might need to build relationships and network for six months before you actually get a broker that’ll send you deals, so there’s definitely deals out there that you can find. It just takes some work. And for some people like me personally, maybe you go outside your market. I invest a lot long distance. So I live just north of Boston, and we live in a pretty expensive market. And I was able to find much better cash flowing deals down in Texas. And so, I do a lot of investing down there. And so, maybe you could go that route, and you could invest long distance as well.

Mark Ferguson 23:21
Yep, for sure. And, you know, I thought that route too because in Colorado, our prices, you know, skyrocketed. And I bought 16 rental properties from 2010 to 2015. I stopped because it got so expensive. And I was going to go down to Florida and buy properties, but that’s when I discovered commercial properties here in Colorado, and that I could cash flow with them. So it’s like, yeah, you can, there’s a number of ways. You can go different markets, or you can even just look at different niches inside your own market.

Robert Leonard 23:46
We’re going to move to that commercial piece in a minute, and I, I’m excited for that part of the conversation. But before we do, how do you decide between keeping a property as a rental versus selling it as a flip?

Mark Ferguson 23:57
That’s a great question, and I get that a lot. So right now, especially, you know, looking back at how things have gone. Pretty much any property that made sense, that cash flowed, and was, you know, in an area, where I wanted to keep a rental, I keep. So it’s harder for me to find rentals than it is to find flips. So, you know, if I find a rental that cash flows; is in an area, where I’m fine, keeping it long term, I will keep it as a rental. For flips, it’s kind of like, you know, I don’t care as much about the area, you know, as long as I know values. I don’t care as much about how old it is. So sometimes with rentals, if they’re super old, I’ll try to avoid them just because so much can go wrong in an old house. No matter how many repairs are done to it, you know, it will need more maintenance. And I’m not as worried about, you know, future economic problems, or issues, or how much cash I have into a flip. So I’m willing to take on bigger repairs on the flip, too ’cause I know I can get my cash out quicker. And–but in general, it’s just if I can find a good rental; if it cash flows, I’ll keep it. For flips, it’s more about the profit potential, and I don’t care about cash flow because we’re selling it. And it’s just between those, you know, two situations. And really looking back, I wish I would have bought more rentals, when I could because there were some properties we flipped that would have been great rentals, you know, back in 2012 to 2014. But I just didn’t know prices would skyrocket like they did.

Robert Leonard 25:14
Yeah, especially in Colorado, right? I think you guys have one of the, the most appreciating markets in, in the country, so definitely would have been a good time to get in on some of those rentals.

Mark Ferguson 25:23
Right. Yeah, no, my first rental I bought for 97,000 in 2010. And literally put $2500 of work into it. And I just sold it for 275,000. And did it 10/31 exchange into a commercial property. But yeah, our median price in 2012 was 110,000. And now, it’s over 300,000 here. So it’s been crazy!

Robert Leonard 25:45
Let’s talk about your transition to commercial from residential. Why did you want to make that transition?

Mark Ferguson 25:51
Really, it wasn’t something I planned on or really, you know, had this epiphany like, “Oh, I need to do commercial!” Like I said, I was kind of trying to figure out where I could buy more rentals; went down to Florida; found some decent areas. And then, on the MLS, I saw really cheap property pop ups, you know, this is, you know, when most houses are 200,000 at least. I saw property pop up for 110 like, “Oh man, that’s cheap!” I saw it’s commercial. I’m like, “Oh, I don’t really want commercial. Well, I’ll just check it out and see,” so I looked it up is like 3000 square feet of furniture restoration building, and I just kept looking at it. I’m like, “Man, this thing is so cheap compared to houses. It doesn’t look like it’s in horrible shape. It’s occupied right now. I’m going to go look at it.” So I went and looked at it; kind of started learning how market rents worked with commercial properties; looked at similar properties for rent. I’m like, “This thing should rent for 1500 on the worst day of the year, you know, in a blizzard, when nobody can come out and look at it.” So I made an offer on it. And full price offer that same day. And I didn’t hear anything for like two days. I called the commercial (*inaudible*). “Hey, you know, did you guys see my offer?” It’s like, “Oh, yeah! We got it. We’ll get back to you soon.” “It’s full price with no inspection.” It’s like, “Really?” I’m like, “Yeah!” “Oh, okay. I’m gonna look right down today.” And they got back to me; accepted it.

I learned, oh, man commercial agents are, they’re great, but they’re totally different than residential agents. And we ended up renting that property back to the furniture restoration place for 1500 dollars a month. He’s still there, three years later. I think we had to replace the heat pump, and the furnace, and the roof, but that was covered by insurance. And that’s all we’ve done that whole time. And actually, we refinanced that property and appraised for 250,000 this year. So took 65,000 out, still cash flows, and just been amazing. And once I bought that property, I just like, “Oh, man, commercial is great.” Start looking at different deals, and we bought anything from, you know, small 800 square foot shop to the 68,000 square foot strip mall, where my office is right now; where I’m at right now. And just the ability to add value is just massive in commercial because you can add leases, you can add income, and it’s really easy to figure out what it’s worth based on cap rates after you do that. And then, the fact that it cash flows because owner occupants can push prices up, and pay more on a single family home than an investor would ’cause they don’t care what it’s gonna rent for. They care, you know, what they can buy compared to other properties in the area they want to buy in. Whereas commercia, you know, there’s no real emotional owner occupants buying that building. It’s investors, who want to make money. Now, there’s some that are overpriced still. But in my experience, you can get much better cash flow on commercial if you’re patient and really look for those deals.

Robert Leonard 28:28
And so, when you say commercial, you mentioned a couple examples there about renting the businesses, but so when you say commercial, you mean actually business type properties, right? Because in, in apartment investing or multifamily investing, anything up to four units is residential, anything above that is considered commercial. So I’m assuming you mean, more on the business side of things, right? Not multifamily commercial.

Mark Ferguson 28:51
Right. I mean, commercial. So everyone’s like, “Oh, you know, commercial investing.” I don’t, it’s kind of like, you know, the banks have their commercial lending department, where you get loans, and that’s why people say, “You know, a 40-unit apartment building or a commercial.” I don’t consider that commercial. I think it’s confusing. I think it’s an apartment building. It’s residential. So no, when I say commercial, I mean straight businesses; industrial; retail; office space; warehouse; not things that people are living in. So, you know, I have one mixed use property that is three residential units and one commercial. So I still consider that commercial. And the banks do too because there’s a commercial unit in there. In fact, that can make it kind of tricky to finance and appraise because of that. But yeah, I mean, straight commercial, not multifamily. Because in my market, too, I looked at multifamily. And they were more expensive, even than the commercial stuff. So one thing about commercial is you’ll find there’s less competition there. I found there’s so many less investors, who are willing to jump into it because it’s complicated; because, you know, so different than single family or even multifamily residential properties.

Robert Leonard 29:58
Yeah, I think that distinction between large multifamily; just the distinction between what commercial actually means is often blurry. So I wanted to make sure that we chatted about that. And to your point, yeah, it is–it can be more complex. So how are you able to find and fund your commercial property deals?

Mark Ferguson 30:16
So I’ve found them a number of different ways. So like this big one was a pocket listing, actually. So when I first started looking at commercial, I was looking at some pretty big deals. And even though I’d been an agent for 15 years at the time or something, I worked with a commercial broker because I knew I didn’t know everything. And I knew there’s some things I’d missed. So I worked with a commercial broker as happy to pay him a commission to find those deals and to help me work through what I needed to work through. And along the way, he brought a deal to me. It’s kind of, you know, a property he had listed. Amazing deal. I bought in multiple properties just from the MLS that were listed on our local MLS. Yes, the other weird thing with commercial is some are on MLS; some are on LoopNet; some aren’t listed; some are just sitting there; and you try, and you know, send a letter. They’re all over the place. And I bought one from Facebook. It was a commercial property. You know, there’s fake ones we send letters to. They’re just all over. So finding them is, you know, tricky because the ones that are listed on LoopNet often aren’t the best deals, but if you can network, find off market properties, you can get some really good deals.

Robert Leonard 31:20
For those who may not know, what is a pocket listing?

Mark Ferguson 31:24
Basically, let’s say, I’m a real estate agent. A seller comes to me and says, “Hey, I want to sell my house. You know, can you list it for us, put it on the market?” I say, “Sure, no problem.” And then I tell my buddy, John, “Hey, John! I’ve got a really good deal over here. You know, do you want to buy it from me before it hits the market?” And John says, “Sure, it’s a good deal. I’ll do that.” So basically, the agent might, you know, earn two commissions: one for the seller and one from the buyer. And he’s selling it before it hits the market in order to get those two commissions. Ethically, there’s some questions there, and in fact, Colorado kind of crack down on coming-soon listings, which are, you know, meant to market to potential buyers before it’s actually listed. So, agents will do this quite a bit to try and earn two commission(s) [SIC]. But the problem is it doesn’t always get the best price for the seller, if they’re only marketing it to people they know. So pocket listings can be great for buyers usually not so great for sellers.

Robert Leonard 32:19
And to get those pocket listings is the best way to build relationships with brokers through like networking meetups and things like that, or what would you recommend to start building those relationships?

Mark Ferguson 32:29
Exactly, you know, just, you know, going to meetups. There’s a commercial meetup in our area every month. You know, you don’t find as many commercial people in the, you know, residential, you know, flip or wholesaler meetups. But there’s, you know, specific commercial ones, looking up who has listings that are commercial; talking to them; having lunch with them, you know, all kinds of ways to meet those people. And you will find, you’ll find a lot more pocket listings, a lot more of those low key kind of properties in the commercial world than you will the residential world.

Robert Leonard 32:58
Given that you had been in the, the real estate space for 15-20 years by the time you made the transition, I think it was probably pretty easy for brokers to see your credibility and understand that you were serious about your properties. But how about somebody that’s relatively new, has a couple properties, or maybe 10, 15, 20 units in the residential side, and they’re trying to make that transition to commercial, and they don’t have that backing? How can they show brokers that they’re serious and that they really have credibility in purchasing those properties?

Mark Ferguson 33:26
I think one thing is don’t be afraid to start small. You know, like some of the first commercial deals I bought were $100,000, when I couldn’t buy a house for less than 200, which, you know, one bonus there. But the other bonuses–yeah, the commercial game is so different. And it is tough to get agents to take you serious if you’ve never invested in commercial real estate, even if you have a bunch of residential properties. If you just have one commercial property that kind of like lights the light in their head like, “Oh, okay. Maybe he does know what he’s doing. He might be serious. He’s done this before.” Even in a residential, you see so many investors, who want to invest who never do. And so, people won’t take you serious. So it’s really just getting that one deal, or, you know, being willing to put up a little more earnest money; being willing to waive some of those, you know, contingencies can help. But with commercial deals, especially bigger ones, I, I don’t recommend that very often ’cause it can be so complicated.

Robert Leonard 34:21
Yeah, be careful with the contingencies, but it definitely is a good way. And I think when you’re having conversations with brokers just make sure you know what you’re talking about. Use the right lingo, you know? Just show that you know what you’re talking about. I think that goes a long way for building that relationship and building your credibility.

Mark Ferguson 34:37
In the meeting to buy this big property, the brokers, who were kept mentioning T.I., had no clue what it meant. And my partner was with me, and he’s like, “What’s T.I.?” And I’m like, “I think it’s taxes and insurance, right? Like T.I., T.I.” Like “Oh, okay,” and then, you know, a couple days later, the brokers mentioned it again. I looked it up like, “Oh, it means tenant improvements.” I had no idea what I was talking about. And then, and so, yeah, knowing cap rates; knowing what those acronyms mean: tenant improvements; triple net leases; gross leases. Just knowing some of those, yeah, it goes a long way. It’s a great suggestion.

Robert Leonard 35:10
Based on our conversation, I think I probably know what your answer to this question is going to be. But now that you’ve done both commercial and residential, which do you prefer?

Mark Ferguson 35:19
No, that’s, that’s easy. It’s commercial. And one thing that I’ve been thinking about lately is for one, you can scale, you know, with commercial fairly easy. So, you know, I buy one residential property. It’s 2000 square feet, maybe you rent it for 1500. And that can be a great investment. I, I love those properties I bought. They’ve been great for me. But I can also buy a 10,000 square foot property, and make more of amazing value-add possibilities. But the really cool thing about commercial as opposed to say an apartment building is with that 10,000 square foot building, I might have two tenants instead of 20. There’s so much less management that can happen with the right commercial properties. We have five-year, 10-year leases. You’re renting to businesses that care like, you know, they have customers coming in their building. They have to take care of it. They don’t want to lose their location. They’ll take care of so many more things as opposed to a big apartment building, where you’re renting units for 700 a month. People are moving out all the time. You got evictions; you got tenants screaming and mad at each other. Just the management is so much different on these big commercial properties. That, yeah, by far and away, they’re my favorite.

Robert Leonard 36:27
Yeah, that part about them wanting to retain their location and actually taking care of it because that represents their business as well. I think that’s so huge. And you don’t necessarily see that a lot in rental properties unless, you know, maybe you’re doing single families, and you have a long term tenant. But, yeah, in general that’s a really good point. And I think what also is great about commercial is the the triple net lease. I mean, really, the tenant is responsible for, for everything in that case or for almost everything, and that’s a definite benefit of commercial real estate. Will you ever go back to rentals, residential rentals, or do you think you’re just going to say through commercial?

Mark Ferguson 37:02
I would probably stick through commercial, honestly. Unless something crazy happens, and I can’t get commercial deals anymore, which I don’t know why that would happen. But no, I think I would stick to commercial. There’s been, you know, even if I found big residential, multifamily properties, I’ve seen some deals come along, and I’ve even made offers on them. But my plan was to flip them. Like my plan was like, okay, maybe we’ll stabilize it. We’ll get renters in there. We’ll flip them because I don’t want to deal with the long term of it. And they’re overpriced in my opinion; in my market for residential rentals, and I think in a lot of other markets. So, yeah, I don’t see myself going back.

Robert Leonard 37:41
I have been considering going into commercial as well. One of my best friends is a credit analyst at a big bank up here in New England area. And so, he deals with commercial properties all the time. And he’s talked to me a lot about that. I see the benefits. I understand the benefits, and I definitely want to go that route. But for me, one of the big things that worries me is where we’re at in the market cycle. And just how small businesses, local businesses, brick and mortar businesses, specifically are doing right now in the wake of Amazon, and, and necessarily the economic cycle. So what do you do in that case? And are you worried about businesses potentially going out of business, when they rent from you? Or are you less concerned with that than you are with, you know, a tenant moving out in residential?

Mark Ferguson 38:25
That’s definitely a concern. Because, yeah, during a downturn, everybody has to have a place to live, but not everybody has to have a business. So it can definitely have more risk in downturns. And that was something that concerned me as well from the beginning because you have 5 and 10-year leases, but you can also have one year between tenants. You know, it can take a long time to rent a property. First off, you just have to be prepared to know it’s gonna take a while, and that you might need, you know, quite a bit of cash reserves. And then, second, we try to make our properties kind of multiuse (*inaudible*), so like, you know, in my big building, we have a grocery store. So that’s not gonna go away, I don’t think. I don’t think Amazon will take that over. We have a dance studio–children’s dance studio; a restaurant, a labor office for temporary labor; and they’re actually moving out; and the dance studio’s taking over their space next year. And then, my real estate office, and there’s a coffee shop as well.

So kind of all those businesses are gonna keep going as long as they’re not, you know, as long as they’re doing their management well without Amazon taking them over. Some of my other ones, you know, are, are similar–a welding shop; the furniture restoration store. So, yes, you can see some areas, where retail will go away. But if you look at the percentage of retail, and what’s occupying commercial, at least from my experience, it’s a very small percentage of the actual tenants and uses out there for commercial that could be taken over by online stores, you know–clothing; electronics. You know, there’s not–they’re out there, but it’s not like an overwhelming amount of tenants are in that niche. So, for our buildings, we try to have multiple units; not have, you know, 160 thousand square foot tenant. So try and split it up, so that, that reduces our risk. And then, you know, for our buildings, if a tenant does go bankrupt, or they have to move out, it’s not specific to their one use, where we can only have, you know, that one tenant come back. We’re willing to make a few repairs; do some work to get other tenants in, or it might work for other tenants just for the, you know, footprint of the building. So yes, you’re right. It is risky. But there are some things you can do to protect yourself as well.

Robert Leonard 40:37
Into your point, I mean, you don’t have to accept every business that applies to rent from you, right? I mean, you could when you get those applications in, you could ask for financials, which I think mostly everybody will, so you can look at their financials. You can look at their track record; how long have they been in business. If they’ve been in business for 30 years, that means they’ve gone through two, three, maybe four recessions, so they’re probably going to be okay in the next one as well. So you can take those things into consideration, and obviously like you said, you could take the business that they’re in and take that into consideration as well, right? I mean, a local nail salon probably isn’t gonna get overtaken by, by Amazon. So you, you’ll probably be okay there.

Mark Ferguson 41:11
Right, no. That’s a great point. Because when we bought this big building, we had a couple of vacant units. And there’s a laundromat that wanted to move into one of them, which seems decent, but they wanted us to spend like $200,000 to get it ready for them. And I’m like, I don’t want to wait 10 years to break even on rent for, for what you’re looking at. And then, they didn’t really have a track record either. So we just kind of waited. Then, there was an event business, you know, having like parties or whatever. They wanted to move into that space as well. And they had never done it before. They were starting brand new from scratch. And I’m like, “Ugh, I don’t know about that.” So we kind of held off on that. And then, a dance studio came, and just like you said, they’ve been around 30 years, you know? They had a proven track record. They had a massive clientele, very professional, and like, “Oh, that’s almost a no brainer.” You know, they’re moving into a better location, where they were before. I think we did like $30,000 in work for them. So that also kind of helps doing work for the tenant because it helps tie them into that property as well. Because you can customize it to them, and they don’t want to leave, and try and find someone else to do work. And then, when you’re adding value with those leases, you can refinance the property, recoup it. It’s really a fantastic business if you understand how it works.

Robert Leonard 42:23
So what happens on the commercial side of things, when you have a tenant that goes bankrupt? And say, you had a 5, 10-year lease, and they go bankrupt, maybe year 2, 3, 4 before that lease is over, how does that work? Do they have personal guarantees in there? Do you go after the LLC, and then–but I think that would probably protect them from their personal assets. So how does that work? And what is really the benefit of those long-term leases if you have no, you know, benefit of going after them in court, when they go bankrupt?

Mark Ferguson 42:53
Right, and it all depends on the lease and how it’s written up. So I think someone have personal guarantees, but I mean, my thought process is if they go bankrupt, you’re not going to get your money. They, they don’t have money, unless the company is going bankrupt for some reason, but it’s kind of like squeezing a turnip, you know, nothing’s going to come out. So you just try and focus on good businesses; assume that once in a while you’re gonna have a bad situation. And usually it’s not worth the court costs; the attorneys to go after them. And that’s been my experience. Luckily, I haven’t had anything too crazy happened, but we have had businesses stop paying us, and we evicted them. We got them out. We moved on. That’s what we did. And so, if you have decent properties, they should be pretty simple to rent again. But that is a risk, and you just got to, you know, have to hope that it’s not a big giant company that goes bankrupt ’cause I–yeah, I mean, they’re lawyers, they’re–you’re not going to get any money from them.

Robert Leonard 43:47
Yeah, I mean, it really just goes back to that screening process, right? You just got to make sure you really get the best businesses in there that you can just like you would on the residential side with potential tenants. Now, going back to the residential side for a minute, and because I know you’re still doing a lot of flipping, even though you’re now in the commercial space. What role does the economic and real estate cycles play in your decision making, when you’re trying to consider a flip opportunity?

Mark Ferguson 44:12
We have been flipping since 2002. So we went through kind of the last crash, and we flipped through it. And really, we don’t change what we do. So a lot of people ask me this. I kind of posted a lot on social media in different things. We flip the same way we flip no matter what the market is because I can’t predict what the market is gonna do. Like, that’s probably, you know, one of my number one rules. When I start predicting what prices will do, that’s when I really open myself up to risk, you know? In 2012, there were tons of people saying we’re gonna have another double dip recession and another housing crash. It didn’t happen. And if the experts can’t predict it, I’m not going to try and predict it either. So we always just buy with plenty of profit room, you know, expecting that prices could go down. You know, we can’t expect prices to go up; expecting that everything’s gonna cost more ’cause it always does. Everything’s going to take longer. So, you know, we can’t push our margins. We can’t buy, you know, mediocre deals just ’cause we’re short on deals. We just have to stick to the fundamentals. And basically, you know, get things done as quickly as we can, so we limit our exposure; don’t take on massive projects; and have plenty of room for issues that might pop up.

Robert Leonard 45:20
Time in the market is more important than timing the market, right?

Mark Ferguson 45:25
Exactly. Like some of my worst properties were ones that were just massive remodels and had so much profit potential, but it took so much time that all sudden it’s like, “Man, I didn’t even make any money. What happened? ‘Cause it’s just so expensive to hold properties when you’re flipping.”

Robert Leonard 45:39
So you mentioned social media there, and I’m glad you did because I want, I want to talk about that as we near the end of the conversation. And it’s not directly about real estate specifically, but I want to talk about your approach to social media and just content creation in general. I know you have a pretty large following on Instagram, Twitter, and you have a popular YouTube channel. So what impact does this have on your real estate business? Why do you create so much content?

Mark Ferguson 46:03
Really, it was just randomness to start out with. I started a blog investformore.com back in 2013 now, and things were going pretty decent. I was kind of like, you know, into a kick of, you know, having another stream of income and my buddy, who works for me now suggested, “Hey, start a blog.” I didn’t really know what a blog was. I hadn’t written anything for 10 years back in college. I just started writing articles. And people liked them like, “Oh, this is kind of cool!” And then people said, “Oh, man! You, you help me do this.” And it’s just like–getting those emails where people said, “Hey, you actually helped me do something,” like you don’t really realize how good that feels until you get one of them. And it’s like, “Oh, man! This is pretty cool.” So from that point, I kind of wrote more and more articles; had no idea what I was doing. And the blog took off a little bit, you know, we got like a hundred thousand views a month or something like that. And then, I started creating books, you know, from that as well. And, sorry, the YouTube channel that kind of goes over everything we did, and I didn’t really have any set plan from the beginning. It’s just kind of learning as I went.

But along the way, we started making decent money with it, you know? We started selling quite a few books. We have a few coaching programs; a few affiliates we work with; and it’s become a pretty decent source of income for us. I still make much more from flipping and rentals and everything, but it’s kind of a nice side gig. And then, you know, you’re able to teach people and help people. So on Instagram, you know, I spend way too much time on Instagram. But it really shows. I’m creating my own content and helping people as my main goal, and then that really helps boost you up. It’s not just the same old motivational quote that 10,000 other people are posting. And then, people start to go to your website. People start to go to your YouTube. They start to buy your books, and it’s just kind of like a revolving circle, where you get someone from Instagram, and you introduce them to the rest of what you’re doing. And you can kind of build a fan base.

From that, not only are you getting people who might buy your books, but you’re getting people, who might send you deals if they’re local. It’s like, “Oh, I saw you on this blog. I’m a wholesaler in Fort Collins or something.” Like, “Oh, really? Cool.” I’ve met a lot of people that way. I’ve found, I think, contractors that way, who contacted me from the blog and different stuff. So it’s just, you know, just getting my name out there. It’s hard to pinpoint exactly how much it’s helped and affected me versus the time I spend on it. But one, it feels really good to help people. So even if I don’t make money at it, that’s a huge bonus; two, it increases my network, which even though I’m not a huge talker; and still, you know, I know the bigger network I have, the better my business will be. And it also generates income. So it’s kind of everything helps bring it together. And it’s just been a lot of fun, too. So.

Robert Leonard 48:46
So do you think other investors should be active like you are on social media platforms to help them build their real estate businesses?

Mark Ferguson 48:53
I think so. You know, I know a lot of investors who don’t have the books, who don’t have the blog, who still get a ton of social media. You know, I know a guy who’s gotten quite a bit of private money. He’s met wholesalers, and he gets buyers for his houses on social media. Of course, you want to use agents; list your houses there. But the more exposure you get for your houses, the better. You meet so many different people, and there’s a lot of people out there, who want to help others, who you can help. And you can collaborate together to help find the best contractors, the best lenders, so much stuff. And not only that, but by being on social media, you learn what other people are doing, and it can help you do your business better as well.

Robert Leonard 49:37
Yeah, for all of those reasons that you just said is exactly why I’ve been recently increasing my presence on social media. Before I started the podcast, I didn’t have any social media pages. I just wasn’t really a big fan of it. And then, when I started the podcast, I saw people like yourself. I followed you for a while now; posting a lot of content. I said, “You know, I know this stuff. I can, you know, I could post this content, and help other people.” And just like you said, I’ve been getting messages of people that I’ve been helping, and that feels so great. And so for me, I’ve been trying to do exactly what you said; trying to put out a lot of educational content really just help people as much as I can. And if that leads to networking opportunities and other opportunities to help grow my real estate business, then, then that’s great. But just, you know, helping educate people is so, so fulfilling as well.

Mark Ferguson 50:18
Yeah, I know, it’s kind of crazy. I’ve had a few people message me on Instagram saying, “Hey, I just bought my first rental or I just flipped a house, thanks to your Instagram page.” I’m like, “Really?” Like, I mean, I know, you know, I’m providing information, but it’s kind of crazy that, you know, an Instagram page helped you do a deal, you know? I can just see it being a part of it, but people literally say, “Because of your Instagram page, I wasn’t afraid to buy this house; or I learned what numbers I needed; or you know, just–I was willing to risk stepping into the game,” and like, like, wow, that’s kind of crazy. I didn’t even expect that. So it’s really cool.

Robert Leonard 50:51
It really is so great. And I mean, you and I are connected this evening because of Instagram. I mean, that’s, that’s how I became familiar with you; following your page; and that’s, that’s how we’re doing this interview tonight, so it definitely can open a lot of doors in terms of networking, and you really can help a lot of, a lot of people.

Mark Ferguson 51:06
Yup, exactly.

Robert Leonard 51:08
Mark, thanks for your time. I really appreciate it. We just discussed some of the social media platforms that you’re on, but what are your handles on those platforms? And how can the audience connect with you and learn more about all that you have going on?

Mark Ferguson 51:20
Yeah, I know it–like I said, InvestFourMore is my blog. And it’s invest, the number four spelled out, F-O-U-R-M-O-R-E, and for people that ask that was all about getting more than four mortgages. That’s where that name came from ’cause I ran into that problem, when I was buying my first rentals. So investfourmore.com is my blog. We have hundreds of articles on there; free book on there as well. Instagram: investfourmore is my handle. Facebook’s the same thing: InvestFourMore. Twitter InvestFourMore. YouTube: InvestFourMore. Or you know, just search Mark Ferguson, I show up as well. So kind of try and keep that brand solid. And then, yeah, we have eight books now on Amazon; eight paperbacks and four of those are audible as well. They’re all e-books. So I’ve tried to make those, you know, as all encompassing as I can. It’s not like a clickbait book. It’s an actual book that teaches you everything. So just try to help people as much as we can; love to see people reach out and comment; and I try to respond to. I’m not one of those guys, who just ignores those comments, and is just looking for the likes.

Robert Leonard 52:17
I’ll be sure to put links to all of your resources in the show notes. I actually just purchased one of your books. I’m really excited to go through and read it. If you guys are looking to connect with Mark; learn a lot of really good information, be sure to follow him on social media. Mark, thanks again so much for your time. I really appreciate it.

Mark Ferguson 52:33
No, thank you so much! It’s a lot of fun. Great talking to you. Glad we did it.

Robert Leonard 52:37
All right, guys! That’s all I had for this week’s episode of Real Estate Investing. I’ll see you again next week.

Outro 52:44
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