Transcript
I was running a technology company. You don't take other people's money when you're a tech guy running, you know, working 12 hours a day in a tech company. So, my first fund, the first time you took I took investor money. Didn't happen until 6 years later. 2000 December was the first time I made a real estate investment that wasn't a primary home.
Obviously, I owned my own home then. It happened in Madera, California. So, this is sort of the next step of the story. Um, so I go to Madera, California. It's a nice city.
Um, you know, um, small city. And I see these beautiful homes and they're rows and rows of beautiful fourbedroom Kaufman and Broad homes. They look very nice. They've got stonework on the outside. They've got beautiful big yards.
And I'm being told that these homes are available for 90,000 or 95,000. And I'm really puzzled like, how can this this brand new home be available for 90 or 95,000? So, I go to a broker's place and I I say, "Hey, what's going on here? What is the cost of construction of this house?" He says, "It probably cost $200,000 to build." I'm like, "How can it possibly be getting sold for $90,000 when it cost $200,000 to build it?" He says, "Oh, well, what happened was, you know, a bunch of builders like Kaufman and Broad got together. They built thousands of homes.
And what they did was they had farm workers that were working because Madera has farms all around it. And they would invite these people over and say, "Hey, you can live in this house and you can make lots of money." And stated income, you know what that means, right? Stated income. You don't actually have to show that you actually make money cuz a lot of these are undocumented farm workers. So those people would come in and they essentially they would buy the home with no income, no money down.
And they did that in 2005 and six and seven and 8. And by 2009 they'd realize these homes are not worth anything. So all the workers had left. So the city had entire blocks of beautiful brand new homes that almost no one had ever lived in that cost $200,000 to build that were available for $90,000. And I'm like, "This is incredible.
And why isn't why aren't these just being purchased every single day? Look at all these people coming from the San Francisco Bay area. We all have money." And he's like, "Well, the problem is how are you going to rent them out? because the day you buy them, you have a mortgage and look, there's entire streets of them that are empty. How are you going to make money?
You need to make rents. And I'm like, ah, okay. So, that's the problem, right? So, this is an incredible deal, but you got to find the renters. So, I'm like, okay, let me do this.
What's the nearest city? So, he says Fresno. So, I jump back into my car. I drive 22 miles south to Fresno. And I go talk to a broker there.
And Fresno is a much larger city. And so I go to a broker and I say, "I want to buy a rental property that's not four bedrooms. It's got to be three bedrooms and it's got to be old. It has to be 30 years old." He's like, "No, no, no. Let me show you one that's three years old and it's like only $20,000 more and it's beautiful and it's four bedrooms." And I'm like, "No, no.
I want the old property." So he's like, "Why?" And I'm like, "Don't worry. Just please sell me an old property." So he sells me an old property and it's easy to rent because France is present a big city. So I go to the Ukrainian hacker and I say to the hacker, I want you to make a list of all the websites in the United States that are rental websites, Zillow, Trullia, etc. Make a big list of all of them and then write me a script. Back in those days, we used to write them in Pearl.
Now they're written in in Python or Selenium. Write me a script so that this one property that I have in Fresno doesn't just appear on all of them. Your script is refreshing it every hour. So, it's always on top. Always on top.
Because that's what happens with these sites. You know, when you post your your home, it's going to stay on the top for a few minutes and then somebody else posts and then somebody else posts and before you know it, you're on page seven. So, you stop getting tenant leads. So, I'm like, "No, no, no. I want this script running every hour.
So, every hour repost the home. So, my home's visible all the time." And he's like, "Are you crazy? You're going to get thousands of leads, right? Thousands of tenants leads. You only have one property." He's like, "No, I know what I'm doing.
just post it and put this phone number on there. And so I go hire my first Philippines call center person. So this lady, Julianne, I pay $5.40 an hour. And I give Julian a script. And I say, "Hey, Julianne, you're going to get a very large number of calls from people in in Fresno looking to rent this property.
And I want you to tell them this property is rented. And if they would drive 22 mi north to go to Madera, California, and look at a brand new 4-bedroom property instead of a 25-year-old old property, we would give them a $50 Amazon gift card. All you have to do is go check out the home and come back and we'll give you a $50 card. Roughly 90% of the people would hang up on her thinking it was some kind of scam. roughly 10% be oh this is interesting and we built a website uh with some of the homes that I didn't yet own in Madera California and so we would basically take them to Madera we had a broker that was our friend and this broker would let us check out the property that he would open the door and tenants would go in and look at the property and the moment the tenant would you and many tenants love the fact oh my god look at this it's so much bigger so much nicer granite countertops you know and roughly every 20 Amazon gift cards was getting me a signed lease.
And I was signing lease without actually even owning the property. The bank was in on it. The banks were desperate. The brokers were desperate. And so as soon as the lease was signed, I would immediately buy the property for $90,000.
And then 15 days later, the tenant would be in there and I would refinance the property and pull out $75,000. So now I was in for $15,000 making $1,000 a month. And then I was publishing that data. And before I knew it, an army of people were driving over from San Francisco, buying up everything in Madera and driving the prices up $10,000 a month. Right?
So I had by the time I was done and I was such an idiot because I stopped when I hit 10 properties. You can only finance 10 properties. And what I didn't know back then is there are other commercial ways to finance them. I wish I knew it because I probably own 500 homes in Madera right now. But I stopped at 10.
And of course then I started buying for my sister-in-law and my mother-in-law. I'm going and telling everybody it's like this is the most insane thing ever and it all works because there's a Ukrainian hacker and a Filipino woman, you know, giving away Amazon gift cards so people can drive from Fresno to Madera. And so I sort of built this empire in Madera and then my friends built even bigger empires than me. And you know the the ball really started got getting rolling and my my course started becoming more popular and before I knew it I had to start running more sessions because like people would just there would be standing room and there'd be people standing outside the room listening to me and the next step that happened is I started getting calls from conferences saying we've heard about you you do this weird class and then you know you do this and you tell people about these cities and people go there and they make all this money and you're not charging them anything. You don't have a product.
can you come teach at our conference? So that was really the next step and that was happening 2009 and 10 and 11.