Episode 114: Matthew Hedstrom with Rehab Estimator ProSep 22, 2022
In this episode David Interviews Matthew Hedstrom from Rehab Estimator Pro. If you have yet to hear about Rehab Estimator Pro then you really need to check this episode out. Matt teaches David how easy it is to use his website to plan and estimate your entire rehab project from start to finish. With Matt's software, you can create a scope of work, a contract to purchase, a cash offer, 2 additional seller financing offers, AND a seller's net sheet. This software is AMAZING. It was designed to tackle the hardest thing for a new person to learn which is the repair estimates. It is built for anyone to be able to use even your bookkeeper. You gotta check it out today ->
Things you will learn in this episode:
- Who is Matthew Hedstrom?
- The hardest thing for a new person to learn is repair estimates.
- 2 things you have to get right. ARV and Repairs.
- Built for ANYONE to be able to use (even the bookkeeper)
- Creates a Scope of Work
- Creates a Contact to purchase
- Starts with the ARV and it provides comps as well as pulls the SF to determine cost per foot
- Offers shows has 3 options
- Cash offer
- 2 seller finance options (that you can tweak)
- Sellers net sheet
Links mentioned in this episode :
David: Alright guys, welcome back to the Discount Property Investor podcast! This is your host David Dodge. Mike is in the field today as usual, but that's a good thing. I am glad one of us is out there working. Today I am joined by a special guest, Matt Hedstrom from Rehab Estimator Pro. Matt, how the hell are you, man?
Matt: Amazing, man. Loving it. 20 degrees up here in Wisconsin.
David: Yep, here in St Louis it's about 30 today, so it's a cold one, man. It is. So hey, I am happy to have the opportunity to have you on the show. I have seen your product being used by multiple people are different REIA's. I think it's awesome, so I wanted to have you on the show today. I wanted to learn more about it, and just talk about some of the things that it does and how it can help people. Before we jump into that though, tell us a little bit about yourself, are you also a real estate investor? Do you use it in your business? Or are you a software guy? I'm just curious.
Matt: No, great question, man, I love it. Still a real estate investor, man. I looked at-- I'm all over the place just like many of us. I was in the engineer's office today-- we are putting up and eight unit. I brought Rehab Estimator Pro into a single family house today, gave them a cash offer to the table. I am doing the same thing, man. I practice what I preach, I am not some guru, that's me, real estate investor to the core.
David: Hell yeah! That's awesome. So you're using this in your own business, why did you create it?
Matt: Most of the tools I have in my business were all created because of the lack that I saw in just-- it's how my brain works, needed to fill a hole and I just said, man, this would be super awesome if we had a product like this, so I just developed it, created it, hired the right people to do that, and now we use it everyday in our business. It has picked up so much momentum that-- hitting shows like yours, man. Top guys out there in the field with the best podcasts out there.
David: Hell yeah, man. That's awesome, I love it. Well I have heard great things, let's jump in. Tell us about it, what does it do? What is its purpose? Who is it for?
Matt: It's-- all great questions, man, I get excited about this. I will start puking all over the screen, you just stop me--.
David: No, that's what you're here for, let's hear it, man. Spill your guts, tell us all the dirty stuff.
Matt: I wanted something-- I take a guy like myself who has been in the business for-- I have been a general contractor for over twenty years. I have got my own REIA up here, own funding academy, I have a short sale negotiating business, got all these tools, all these things happening. When it comes to the rehab side and the wholesale side, the flip side; it's like-- taking my experience, it is so easy for me to talk into a house and know what repairs are going to be in less than five minutes. How do you take somebody-- when we have rooms, we have all these people sitting in our audiences that are in a cubicle or they just got into real estate, or somebody sold them a course, and we expect them to take that and go into a house and figure out repairs, and try to find all the things--.
David: That's one of the most difficult things for people to learn. I know that it was for me.
Matt: That is true, if I make this statement, tell me if I'm wrong in this, if I ask the question, look, man, there is two things in this business, if you are going to be a full time real estate investor, there are two things that you can't screw up. Number one, your ARV, right? You screw that up your deal is south.
David: That's where you start, that's what I tell everybody, start with that, that is the first number you work backwards from. If that number is wrong, well guess what? Everything else is not going to work.
Matt: There is no value engineering you do at that point--.
Matt: Second, we come up and say, we have this standard in this country, right? MLS, right? We don't teach students that ARV comes from Zillow, or any of that right? It's MLS, that's the standard. So you tell people to find a real estate investor, a friendly realtor out there or whatever, or go get your license. So why then-- the second thing, you can't screw up a repair cost, it ruins your whole deal, okay? So we have a standard for ARV, but when it comes to repair costs, we pull that number right out of our rear end. Just say, you know what? This looks like 30 grand. There is no backing for it whatsoever. Why not have a tool that everybody in this business trusts, okay? This is newbies, this is wholesalers. Think about the stigma of wholesalers. You know the pictures going around online. There is a tree sticking out the top of the house, and the wholesale is like, hey man $5000 in repairs and it's yours. Why not have a tool that a wholesaler can use, a newbie can use. A seasoned veteran real estate investor. You could send your book keeper out in the field. This is for your lender because now they trust your numbers. This is for all your contractors because you have sat down with them and gone over it, they trust that you are bidding their jobs for them.
David: I love it.
Matt: We need a standard, I happened to create that standard. This is something again like I said before. I want to be able to send my book keeper out and say, can you go look at this house and make sure everything you see-- this is based on--.
David: Add it in. Are we talking about a website, or and app? What exactly is it?
Matt: So I like that you asked, the app was created as well as the website. We keep adding so many things to the site, because now I have a partner in Ohio who is actually a developer. As we keep enhancing and adding to this thing every month, the apps just cannot keep up. There is so much that goes into it. We have got those kind of sitting on the shelf. They are fully functional, but now we are waiting until we fully build out this website. We are adding pieces, we are adding rental analyzers, you know? So your rental properties can be analyzed, because that is very different, we have all kinds of calculators built into it. We have a one page contract. It is pulling comps now as well. The apps just don't keep up, so it is web based right now. It works on your phone.
David: Okay, love it, man. Love it. So you heard it guys; a lot of times whenever you have a software or a system that is constantly being updated, it is best just to use the website, because-- pushing that over to the app, it can slow things down. I always liked using websites whenever there is the option between the two, until it is just very well built out. I love that you are just-- that's huge, that's really huge.
So Matt, whenever you built this out. You were thinking from the get go, what's the hardest thing for people to learn in this business? You have to start with your ARV, we mentioned that, but the next is knowing the repair costs. What does the rehab consist of? So you built something anybody could use. Essentially that's what you're saying, you want your book keeper, whoever to go to the property, come up with a very accurate estimate, because we never know until we start, but to get an estimate-- that's what you've done. Tell us how that even works. You have line items for different things. If I was new and never used it before, and you handed me a phone or an iPad and said, Dave, get in front of the property, here is what you need to do. How does that look?
Matt: Love it, man. First thing is that it is going to pull the property up based on Zillow. A lot of these applications out there use the same base, because we are not pulling from MLS from different places, right? It's going to pull-- going to find your property and you are going to create a new property. From there it is actually going to give you a map, and show you all of your comps around it based on Zillow, and give you an ARV that it suggests, okay? It is the only one of its kind that does this, because it actually stacks Zillow comps, alright? It actually takes and finds one comp, builds on that comp, then builds on that comp. It has a color coded system to tell you, hey man the bedrooms are off, the square footage is off. So once we get that far we have created the property. Now you are just going into basic areas, okay? You are doing-- you are getting into exterior, because you are pulling up to the house, and you are in the exterior tab. Then it is interior--.
David: Hold on back up for one second, before you even get into the exterior interior, you are having this thing help you build an ARV?
David: You type in an address, and it is going to give you a couple of comps, average those, and give you and estimated ARV?
Matt: Yep, it's going to drop 25 properties we have color coded the whole thing. Today I looked at a property and it showed-- it was in a rural area, so it showed me three red tabs right away saying, hey man these three comps are three miles away. It's alerting me to that. I know-- there are not any real good comps. There is no half mile, quarter mile, even mile. But there is another box right on top that says, use this ARV to calculate, okay? So it's going to give you a suggestion, but as we know, that is not what we're using in our final. We are going to do some more research. At least we know where we are starting from, right?
David: I love it. You got to do your due diligence, you cannot rely on someone else to do tell you those numbers. However, the more data you have, the better you can figure out that number. So like me personally when I run comps on a property, I don't just go to Zillow, that's the worst thing you can do, right? However it is part of my algorithm. What does my algorithm look like? It looks like an estimate, it looks like I am looking at the actual comps and determining what I think. Also taking a number from my [00:11:02.14 - inaudible] report, which is my local tax assessor which does their own estimate type thing. I also use PropStream. My team use that, so they have amazing data, and we will pull reports from there. We average all those together to get comps as well. But the fact you guys are giving people some data, again more is better in this scenario. Matt, I think that's beautiful, man, I love it.
Matt: You are teaching the right stuff, man, I love it. If you have somebody that is accurately analyzing a property--.
David: Did I lose you?
Matt: -- I like to take price per square foot. I like to include all these things in that analysis.
David: Yeah absolutely.
Matt: You are going to take your own team and say, here is the ARV [00:11:39.29 - inaudible] okay? You put that number in there. Bang, your property is created, your profile is created. Now you are just going to get into three tabs. Exterior, interior miscellaneous, mechanicals. So exterior, this is all check box based, alright? So this is the beauty of it. I am not getting out and measuring a roof, but I can see the roof and whether or not it needs to be replaced, right? We-- you and me, we are sitting in the van, right? We are sitting in the truck, we are looking outside, we are looking at the front door, we are looking at the gutters, looking at the siding, looking at the porch, looking at the roof, looking at the windows, right? All of these things we can quickly analyze, but now you have somebody that-- you are just checking a box, yeah it needs a roof, single car garage, needs a roof, exterior painting it needs that, landscaping and clean up, always check that box.
David: So before you even check boxes are you putting in a square foot?
Matt: Nope, the square footage is already pulled--.
David: Oh wow that's cool, I like that.
Matt: You got it man, you figured it out. It's building those values based on the prices we already have pre loaded in the there, and the square footage of the house, okay?
David: Wow that is something really cool, I like that.
Matt: That's the difference in the whole game. I don't want to sit-- I spent way too many years looking at everybody's systems. I am not going to knock any system because they were thorough, but you can't give a newbie or a wholesaler or a lender 5000 line items of-- hey did anyone measure the lineal footage of the crown molding on the cabinets? When you itemize items, the whole rehab, you miss four or five things, and you just lost the deal, okay? You cannot afford to miss these things. So we have grouped it into large components, okay? If you go into interior now and you click interior painting, right? I am not-- you are not counting rooms or walls or ceilings, it is going off the square footage of the house.
David: Right, and that's what makes it so simple, I love that.
Matt: -- value is $2.50 per square foot of the house. Take that number to every investor across the country and it works. Some will tweak it.
David: What is it?
Matt: $2.50 based on the square foot.
David: For paint?
Matt: For paint.
David: Man, I love it. I think this is so cool. So you have the exterior-- outside for all those options and all those things. You don't necessarily need to dive too deep. Like you said, you have a roof, exterior that may need brick, may need paint, may need gutters, some shutters, windows, doors, landscaping, maybe some sidewalks, grass, that's it. That's all there is to it, you know? Inside, same thing. Flooring, walls, trim, doors, light switches, stuff like that. Are you going to need to adjust these things? Going to need to paint them? Upgrade them? It's really not that complicated. However, if you don't know, you don't know. When I say you don't know, I mean have you done ten rehabs already? Then you will know. You will think you will spent 20 and you will spend 50, it happens, right? You just don't know. Once we go into a house at this point, we tack on 15-20% to that number just because we don't know, and we know that we don't know. It's okay not to know. But having more data will always help you, and this is what your product does. It gives people the ability to compile data easily, then analyze that. I think that's phenomenal, I love it.
Matt: I love your ad David about percentage. Even a seasoned guy like you and me out there, I am still putting a percentage because here's the thing; I am not going into this house and counting door knobs, vent covers and maybe an electrical outlet cover on the exterior. I don't care about any of that crap, because I am stuffing it into my number on the 10-15% number that is going to be called miscellaneous. We are not counting hinges, we are not there to do that, right?
Matt: You are going to be very close with this number, just like flooring. I am not going in there and designing the house when I am in an initial consult with the house. I am not-- well I want LVT in here, and I want carpet in these bedrooms, and I want some kind of vinyl in the entry way and finish the hardwood floors. No, I am pressing the flooring button and moving on, done, okay? It calculates all that. Now the beauty of that, is while you are checking these boxes, it is creating an entire scope of work for you, okay? On the back end. So now when you press-- let's say you pressed that roof for the main house. You are now in your scope of work, what you can give your contractors, your lenders, whoever. You have a scope of work that says, hey you are going to tear off and remove--.
David: So you guys create the scope of work on top of the estimate?
Matt: Super detailed scope of work.
David: Wow, that is awesome!
Matt: So all of that stuff is built out. If you disagree with-- let's say my middle-- let's say my high end kitchen says, hey we are going to install quartz counter tops it is going to be a custom layout, we are going to remove a wall and put 42 inch uppers, and it is going to be a stone back splash. You can change that to whatever your standard is and it will print that scope of work. It is all at just a click of a button.
David: Man, I was just looking, I am going to do a plug on my book real quick, but I wrote a book, 'The ultimate guide to wholesaling real estate', I wrote the book two years ago. I was just going back to see what I had in there on this chapter. How to determine repairs, chapter 13 actually and we have two different ways. We have the rule of 5's, and we have the square footage estimator. So if you guys are not familiar, I am going to school you real quick on two simple ways to determine repairs, however these ways are not nearly as accurate as something like Matt has created at Rehab Estimator Pro. So definitely go check him out. The ways we did it, or the ways I did it when I first started was the rule of 5's. It is very very basic, but you could be off by five grand super easy, right? But basically, does it need a roof? Windows? Flooring? Kitchen? Bath? Those are all either going to be five or ten grand depending on the size of them. A lot of miscellaneous stuff? Five grand. A ton of miscellaneous stuff? Ten grand. Just rules of five. Big kitchens ten, small kitchen five. Flooring for the whole house, five, right? It's not the best way, but it will at least let you know if it's going to be a 15k rehab, or a 70k rehab, right? It's going to definitely get you in the ballpark or 20-30%, not the best way. The next way that we teach is the square footage multiplier. We have-- we just got our 56th rental property online today, so we have a lot of rentals. We know that in our market, we can get a property rent ready for typically anywhere between $8-15 afoot. We take the number of square feet, multiply by that. It depends on the condition, it always changes, right? But 8-15 is typically a rent-ready one, anywhere from 20-30 is for a light rehab, $35-50 a foot for a full rehab. There is definitely a variance and you will know where you will be depending on your finishes, your neighborhood, and all that type of thing. Again, those-- we are still getting better at those over time. I have flipped over 400 houses, over a hundred rehabs. I am still tweaking those formulas. Taking the guess work out of it, is something that is very interesting, and I am intrigued to learn more about this as well after the fact, because maybe it is something we could implement on our team, to let our guys use that are out in the field as well. I think it's awesome, very cool. How long have you guys been in business doing this?
Matt: It's been a couple of years now that-- we actually really haven't officially launched. All this stuff has been totally organic with who is using it out there now. I do have entire teams now across the country, where they will take their-- some have up to ten acquisition guys, where they put it all in their hands, one person has a master account where they can monitor all ten of their guys with their deals. Like I said, it's not only spitting out that ARV but it is spitting out all of your repair costs, spitting out a scope of work, and spitting out a one page contract they can use to close the deal.
David: Man, the scope of work and the contract as well as-- that is super super cool. Do they have the ability to modify that if they need? Is there some pre program fields that they fill out that kind of merge in?
Matt: Everything is 100% filled out right now. If you go in there with your team, because I highly suggest-- what a great opportunity, right? To take your contractor out to lunch and open this up and say, hey man let's look at the parameters of this. It is one button click, right? You click my parameters, it brings you into all the pricing and scoping details. You can go in there and just tweak it slightly to whatever works. I am telling you, man. I have studied the big GC's doing the hedge funds, I have met with investors all over this country. I can drop names but it doesn't matter here. I have brought this to the job site and we have tested this. The numbers there, that's-- you want to hit objections first, right? People's objections. Well, that may work in your market, but in my market-- I just call bull on that, man. I mean-- it's so similar and so close, man. These hedge funds are hiring GC's all over the country to do the same work everywhere, alright? They are finding the guys to do the same work for the same cost. You can tweak it slightly to however you operate. You may do some higher-end finishes, you may do only. You may just do that standard fix and flip at the $150'000 price point. You can tweak it depending if you have a level A, B, or C contractor, alright? Most of us are dealing with level C contractors in this business.
David: Yeah absolutely.
Matt: That is hard, man.
David: You know what simplifies the interaction between a good investor and a level C or even a level D contractor? To have everything laid out in writing in advance to where you know what should happen when, and you get paid after these actions. I feel most people fail with their relationships. Not because either person is a bad person, but because there was a lack of agreement, another way to look at this is lack of communication that you just write down. It doesn't have to be fancy, guys. You need to have a set of parameters that both people can follow. What is my obligations? What are my duties? People don't put those out. Having the ability to create a scope of work is huge. I know so many people-- their scope of work is on a notepad. That is okay if you are not necessarily trying to make it a business. But if you are trying to make it a business where you are churning out ten plus homes a week or a month or whatever it might be, you need to have a system, and having a scope of work is part of that system. I am blown away, I thought your product just helped estimate. But the fact it creates a scope of work is huge, love that. Tell me more about the contract. This is a contract to purchase, right? You are walking the property, you create this repair estimate. You have already pulled the address that has the square footage and the comps, that gives you that number to start with that you can tweak. You enter your repairs, you click enter, you got yourself an scope of work, and you have a contract, what's up with that?
Matt: Love it, man. As soon as you press calculate offers it is going to pop into three boxes. Right now the system is tweaked and designed where you are going to see-- if you take your standard MAL formula, maximum allowable offer, alright? If you take your ARV times .7, times 70% and minus the repairs you came up with, it's going to be within a couple of hundred dollars typically of that. Except now, this offer is going to show you, here is my holding cost, here is my closing cost, here is the related cost, it's going to break down all those costs. You are not just that guy pulling a number out of your rear end, right? Standing there with Sally the home owner, right? You have actually got something in your hands, because-- I take it to the next level, I always bring an iPad with me, and I also have a portable, wireless, cordless printer, battery. We are walking through the house, by the time we are done-- we are walking down the stairs coming down to the kitchen, and I already have the contract being printed on the kitchen table while we are walking down the stairs, alright?
David: You got a printer in the car or something?
Matt: It is a wireless and cordless printer that I have set on the kitchen table as soon as I get there. It's a tiny little thing like this, man. It has paper already loaded into it. It is already printing scope of work. People are pulling numbers out of the air and saying-- oh we will get back to you. No, I am here to get a signed contract. This contract is going to show you three different options. Number one is a cash offer, which is-- in this market right now people are having a tough time with that wholesale offer. It is going to give you two seller finance options as well, which you can tweak to whatever terms you like. So it is going to give you three different offers. You know in this business, man, when you are getting into these homes, you should be giving multiple exit strategies. Not just, here is my cash offer, take it or leave it, then walk out the door.
David: We do, what's funny about that is we always offer multiple-- however we have strategic people in our business model that do those things. So we basically just wholesale the deal to them even though the approach is different. I don't like doing subject to or seller financing on the purchase side, just not worth my time. But, other people love it. I find the leads a lot of times and say, here is a cash offer, here is another offer. If they like that, boom! I can still help that person, make a little bit. I usually don't charge a lot because I am just helping a friend out, and a seller. But, I make a little bit and they get a deal too, so I love that, that's awesome, guys.
Matt: There is always a deal there, right?
David: Always a deal there. You can't look at your competitors either as competitors. You need to change your mind set, these are your strategic partners. They know people you don't. There are only so many hours in the day, you cannot-- it's impossible to know everybody, right? Everybody has their own circle. They may have buyers for your deals, you may have buyers for their deals, vice versa. You have to change your mindset on that. I think this is great though. Man, it is jam packed with value. You guys start with the ARV, pulls the comps from Zillow and it averages those. Allows you to do all the interior and exterior repair lists which then creates a scope, creates a contract that breaks down your costs for closing, holding, repairs, costs, money, whatever they may be, that you can modify. It gives multiple other options in our offer, holy smokes, Matt, that is awesome, man.
Matt: Thank you man, thank you. You can take it as far as there is a seller net sheet on there.
David: Oh man I love the sellers net sheet! I created one of those for my company a couple of years ago and we never use it. We use it once in a blue moon. But man, every time I feel we have that thing pulled out with an old lady or something, boom we get the deal every time.
Matt: So many great investors across the country I know that is their main strategy. They actually show, hey look this is what's going to happen if you go this route.
David: Yeah you might make 15 grand more in 14 months, is that worth it to you?
David: Get you paid next week.
Matt: Right, exactly, I'm right here.
David: Is that really worth the gamble, you are going to have 12'000 in cost. Let's end this bleeding, I love it, man.
Matt: We have also created-- we had a lot of requests coming in for a rental analyzer. So now this is great too because you are using the same repair costs, right? Now typically with a rental we don't care what ARV is because-- the house is worth to an investor what is worth, it's cash return it's cash flow. But, this is actually going to calculate all of your real costs, alright? Most people getting into the business, they take all these gross numbers and think, this is what I am going to cash flow. No, you have to look out for vacancies, you have to look out for maintenance, property management, taxes, insurance costs.
David: I am always looking out. I have some mortgage companies that don't escrow. Most of them do, but then I'm getting tax bills and I'm like-- I didn't account for that, I spent that on the next rehab. Now I have to find another wholesale or do something, it's always something.
Matt: That's the game.
David: Very cool. Guys, you heard it here! Matt, thank you so much for coming on the show today. Guys, check out Matt Hedstrom, he is the man, Rehab Estimator Pro, we will have a link to the website here in the show notes. Definitely check that out. Matt, thanks for coming on the show today, much appreciated. You have educated us on your software, but also just spending some times with us today, we are grateful for your time so thank you.
Matt: Thanks for having me, man, I had a blast.
David: Absolutely. Matt, any departing words for the audience? Anything you want to mention to them before we head out?
Matt: No, man, it's all about-- you know the drill, man, I love it because you are doing the same thing, man. You got to hustle, man, getting out there, especially today. You have to be equipped with the right tools, have to be able to pull the trigger.
David: Absolutely. Consistent persistent action, that is the key to success, guys. Three words. If you are consistently persistently taking action, whatever you want to do, it will happen, it just takes time, just can't stop. I love it. Matt, thanks for coming on the show. We are going to be signing off, guys. Thanks for listening, until next time, see you later.