The year was 1966. A pilot named Rollin King and his attorney friend Herb Kelleher sat in a San Antonio bar talking business. Rollin grabbed a cocktail napkin and drew a triangle. He wrote Dallas, Houston and San Antonio in each corner then showed it to his friend. The plan was simple. Fly people between these three cities as safely and efficiently as possible. Get them there on time. How did Herb respond? “Rollin, you’re crazy.” Then Herb thought about it a moment more and said, “let’s do it!” Southwest Airlines was born.
My business partner, Manny Romero, and I had a similar meeting at a seafood restaurant in Tempe last summer. Our objective was to implement a simple, easy to duplicate real estate investing system. Since our cocktail napkins had ice cold beers on them I had to sketch out our plan on a yellow note pad.
We weren’t exactly starting from scratch. Fortunately, I had been working for a real estate investor in town as a project manager. This investor was doing about 20 fix and flips a month. Believe it or not he willingly shared this successful system with me. Why? Because he recognized it would create other opportunities for himself down the road (more on that in a minute.)
Practically overnight Manny and I raised $180,000 by partnering with someone that had a self directed IRA. My investor friend wholesaled us two houses and we flipped them both 45 days later for a net profit of $31,500.
Does it make sense now why my investor friend shared his system with me? He just gained a wholesale buyer.
So here Manny and I sat at King’s Fish House with a blank piece of paper and a calamari appetizer – proud of our recent success and motivated to do more. Like Rollin King and Herb Kelleher we focused on controlling costs and being efficient. The plan was to be the Southwest Airlines of real estate investing. This is what we came up with:
- Acquisition – We buy at trustee’s sales and REOs off the MLS. NO short sales.
- Price point, not location – We keep our acquisition price under $150,000. Location doesn’t matter unless the home is in a war zone.
- Type – newer homes with tile roofs, wood-frame construction, 3 bedroom – 2 bathroom – 2 car garage minimum.
- Target buyers – we buy in areas with a high concentration of first and second time homebuyers.
- Rehab – we buy homes that can be remodeled in 7 days or less.
This approach enables us to control costs. When we buy a house at the courthouse steps or an REO off the MLS with this criteria there are very few surprises. We paint every house the same color. We use the same appliances, tile, carpet, light fixtures, blinds, and door hardware. Our houses even smell the same. We buy apple cinnamon air fresheners in bulk.
Have you ever noticed Southwest Airlines jets look the same? That’s because they’re all Boeing 737s. It’s more cost effective to fly the same jet because they don’t have to train mechanics on different aircraft or warehouse a variety parts. Like Southwest, our homes all look the same. The buyer’s agents love to show them.
Since that brainstorming session last summer Manny and I have flipped 29 houses with a 48% cash on cash return to our investors. Not bad. Our just plane smart real estate investing system is working. Our balance sheet make not look like Southwest Airlines’ but these days we are flying high. Break out the cocktail napkins.