This week, Dr. Forrest Bryant interviews Merv Plank, the CEO and founder of Alliance Wealth Builders.
The following is a transcript of the podcast audio.
Welcome to the High Speed podcast. The official podcast of the High Speed Alliance taking you further, faster, together. We are setting our course for freedom and legacy through mastery of business, finance, family and lifestyle.
FB: Welcome to the High Speed podcast. I’m your host, Dr. Forrest Bryant, and we’re always trying to help our listeners achieve freedom and legacy by focusing on business, finances, family, and lifestyle. I’m very excited to have one of my good friends on the show today, Mr. Merv Plank. How are you doing today, Merv?
MP: I’m doing great, Forrest. It’s good to hear from you.
FB: Well, I’m excited for today’s podcast and we’re broadcasting (not live) but soon to be live from North Alabama to Mid-Alabama. So that’s a good connection today, right?
MP: Yes, it’s an all-Alabama day,
FB: Love it. Well, Merv is the CEO and the owner of Alliance Wealth Builders and he is based at Birmingham, Alabama. I’ve known Merv and personally, done business with Merv over the last several years. He is very experienced in the real estate industry. He had a career before really getting into real estate full-time. He ran a $250M kitchen and bath manufacturing company and did an incredible job there. He’s been a cashflow investor since the 80’s and then he kind of ramped that up and started his own business. I’ll let you tell us a little bit about that, Merv. Thanks for being on. Tell us a little back story about you and your business and what we can learn from you.
MP: Okay, Forrest. Well, we started this business about 7 years ago. And obviously, 7 years ago would have been kind of the down side of the last market crash I guess you would call it.
FB: That’s perfect timing.
MP: Yes it was. Like a lot of people my corporate job ended during that period, because I was in the construction industry and there just wasn’t a lot of demand for construction materials. So, when I went looking for my next corporate job, my wife said “can’t you find something to do here in Alabama?” And I said, “well, we can probably” and said “I always wanted to do real estate. So, I met another person, Jennifer Brown, who is my business partner and who was actually a mortgage broker here in Birmingham, Alabama. She had a similar kind of situation. She had a 17 year run in the mortgage business and of course when the downturn hit nobody would lend any money. So she couldn’t make any money lending. So, we had our heads together and decided to develop a turnkey business. And you know, I guess I was a turnkey investor before I even know what the word was because sometimes I was an accidental investor that meant I moved to another city and I had my house that I couldn’t sell so I just rented it. Of course, I made the mistake of managing it myself which is always a challenge. II discovered as we started this business what turnkey really meant. So as we developed the business we realized we needed two distinctly different companies so we have Alliance Wealth Builders and we have this company called REI Management that manages the properties we actually fix and sell. Over the last 7 years, we’ve developed a fairly sizeable business that we do over a hundred turnkeys a year and a number of wholesales that’s not quite as big as that but close. There’s not a week that goes by that we don’t buy or sell a house. Or 2 or 3 and sometimes 4. So, it’s a very interesting and exciting business and I discovered when we started doing the research that Birmingham was the perfect market for that. Because Birmingham is one of those market where the actual real estate market does not go up and down that much. We get annual inflation rates 2-2.5% which is nothing like California or somewhere on the East coast or even somewhere on the Southeast coast where it goes up and down sometimes 15-20% a year. So, the turnkey business is actually right for this market here in Birmingham.
FB: Well, that’s excellent. We love those boring markets don’t we?
MP: Yes, especially if we are in the turnkey business. We are not doing this for appreciation, we are doing this for cash flow.
FB: Okay. That’s right. Give us a little personal background.
MP: Well, I call myself a corporate gypsy. And that corporate gypsy led me from Illinois to Ohio to Tennessee. And then, at last, to a corporate job in Alabama. And you know what happened… when we moved in Alabama we inherited 3 of our grandchildren, which we adopted last year. So it really kind of put our feet on the ground and made us dig in and, you know, be part of the fabric of the community. Because when you raise kids it’s good to have people around you. And my wife and I had done that once before raising our older children. But now we’re ready to raise our grandchildren and that keeps us young and full of energy. And going to ball games and all that kind of stuff. It’s a pretty exciting time in our life actually.
FB: Well that’s great. Thanks for sharing that. So, you’re an expert in so many different things. And we could talk about a lot of different things today. We could talk about single family, multi family, wholesale, turnkeys, active turnkeys, private lending. We could really go in a lot of different directions. But I want to kind of, in this first section, you know this is our public section and I just really want to kind of focus for new investors out there. Let’s kind of dial it in a little bit, let’s talk about the turnkey model and a little bit about wholesaling and kind of the flipside of that, how private lending can kind of go into there. Because those are kind of some real easy entry points for our listeners who are physicians or dentists or small business CEOs. So, let’s kind of just define those terms a little bit. What does wholesaling mean? What does turnkey mean? And then private lending? Let’s just hit it from a real high level first.
MP: Yeah. Let’s start with the simplest form, I guess, which is wholesaling. And wholesaling has been around for a long time and it’s probably the best way to get into the business from the ground up with no money and we’ve all heard about the buy and sell houses with no money idea. It does take a little bit of money to do wholesaling but not a whole lot because basically you’re going to find the house that somebody really needs to get rid of. Negotiate that price with them on what you are going to pay for the house. And then find somebody who wants to buy that house for more money than you’ve negotiated the price that they want to pay for. So really what you want to wind up with is the spread. When you’re wholesaling, sometimes we make as little as $3,000 on a deal which is less than even a real estate commission a lot of times. But then of course sometimes we do a lot better than that but what you do is when you actually sell the house, you close on the house, you do a quick close between the 2 transactions and that’s a wholesale deal. Now, the biggest challenge of wholesaling obviously is the marketing side because you’ve got to go find that deal and you’ve got to market on the other side to sell the deal. So, there’s where it really takes money. Not buy the house but actually to get involved in the activity of marketing for deals and marketing the deal after you have it under contract. And for most wholesalers or most investors that I know this is some kind of level of wholesaling. Because in our case, what we do is we find houses all over the Jefferson and Shelby County markets that people want to sell but some of them don’t fit our turnkey model. If they don’t fit the turnkey model, then we just wholesale them to somebody else. Somebody wants to do a fix and flip or somebody that actually wants to live in the house…a couple weeks ago we actually sold that house to an owner occupant who wanted to live in the house. It wasn’t fix up but they wanted to fix it up after they moved into it. So, wholesaling is kind of the simplest form, I guess, of doing real estate investing. But people always say when I talk about a turnkey model that it is fairly complicated and it’s true. Because there are really 5 major steps in doing the turnkey model. Of course, the first one is you’ve got to buy the house but in this case we don’t just find a buyer, we actually fix the house. So, we buy a house for 30,40,50,$60,000 and we’ll put 20,30 sometimes $40,000 into it before we ever rent it because that’s the 3rd step. So it’s buy, fix, rent and then we have a sales process where we sell to buyers all over the world because there are people in lots of parts of the world that can’t buy houses at the price they can buy for in Birmingham In fact, even in your market, Forrest, it’s hard to find a house with a kind of returns that we have in Birmingham even the Huntsville market. After you sell it, the 5th step then would be to manage it. In reality, the investment properties go better than the return you get and the person that’s giving you the return of the house is actually the person that’s renting it from you and living in there and paying the rent every month. And so it’s important that if you’re managing that property you make sure that people don’t tear it up, that they pay the rent and that they are good, responsible tenants while you have the house. And that’s really where the cash flow comes in but you know there’s not too many markets around the United States these days where you can find a house that let’s say it’s rented for $900 a month that you can buy it for $80,000 or $75,000, it’s more than 1% of the rent versus the purchase price. So, those numbers are actually kind of quick check numbers to see if they make sense. But there are people today, they’re actually paying way more than for rental properties. So, we think Birmingham is a great market. There are other market in the United States that are like ours. But most of them are better discovered than Birmingham. That kinda gives you a quick overview of the wholesaling side and the turnkey side. Kind of shows you the difference between the two.
FB: Great and I just want to make sure our listeners caught the point that you mentioned about investors from all over the world buying into Birmingham. I get questions a lot of times people think if I tell people I’m a real estate investor they think ‘well you must be buying and selling things in Huntsville’. And you know I don’t own any rental, residential property in Huntsville because it doesn’t cash flow as well as other markets. So, I want people to understand this is not necessarily something that you’re going to learn how to do in your backyard. We’re going to work with trusted advisers, boots on the ground who are in the markets that really cash flow. So I think that’s the really important part. Thanks for bringing that up.
FB: So, let’s talk about private lending just a little bit. Private lending can be available for wholesaling and even at the beginning part of the turnkey process, correct?
MP: Yes, so we actually borrow money from private lenders. Sometimes to do a wholesale property but usually that’s a very short-term thing because usually within a few days or at least a week or 2 after you buy the house you’re going to sell it on a wholesale deal so you might have a real short term, short window for needing money to buy that property so that’s one way. And that’s usually done on a sort of pre-negotiated arrangement whatever that number is that you’re going to agree to pay a lender. But on the turnkey side, when we buy that house it’s usually going to take us 3-4 weeks to fix that house up. And then it’s going to take us probably another 3 or 4 weeks to rent the house. And then once we get it under contract it’s going to take another 60 days or so to get that house closed to the new buyer. So you can imagine if you’re doing as many house that we are doing it takes a lot of money to keep all that machinery working because we’ve got to keep on repairing house after house after house. So, we actually borrow money from private lenders. And, as you know Forrest, we have done a number of deals with you along that private lending arena. And they way it works, you just loan us the money, we give you a note in the mortgage. When the house sells, we give you that money back along with that interest that we’ve told you that we’re going to give you. And it’s really a very simple process I don’t think that anybody would find it very complicated, do you?
FB : No, I don’t find it complicated and as a matter of fact I love it, I love it. I love being a private lender and that’s one thing that I’m excited about by bringing our members of High Speed Alliance into this. Because it’s not just a well-known thing working with trusted advisors like you where you have security in the property. So that you know, I know some of the private lenders out there are like “Hey Merv, why don’t you go down to the Bahamas and not pay me. So, I can take that house.” I know there’s a lot of security in that and also the returns are very good too.
MP: Forrest, I might just mention there that there are lot of people who would like to be private lenders. That think you can just go out in the open market and find somebody to lend money to that’s doing real estate. But you know as well as I do that it really comes down to trust. I think I met you quite a while before I ever borrowed the first dollar from you.
MP: Because we had a number of meetings, the number of times that we’ve met, the number of times we’ve talked. You actually came down to Birmingham, you looked at what we’re doing. We went through that whole process of really getting to know each other before we ever did any business on the lending side. And that’s probably the most important part of being a private lender is knowing exactly who you’re lending to.
FB: Very good point. We both did due diligence on each other before there was ever a business transcation that happened there.
MP: That’s true.
FB: This is not something where there are online portals where people can go on there and they can do private lending on the internet without ever knowing who’s on the other side of that. Don’t recommend doing that, you need to be able to look somebody in the eye if you’re going to lend them some money and you need to have some discussions about what things look like when they’re right and what things look like when they’re wrong. So, definitely there’s a trust element to this to make sure that your money is wisely invested. So, let’s kind of keep it on a high level. I know you are an expert in your market, I’ve driven in Birmingham with you so I know from one street to the next street, from this neighborhood to this neighborhood, you know your neighborhood. But you’re also in a lot of masterminds and you’ve got a lot of friends that are plugged in to all these other different markets all around United States. And just I want to hear from Merv Plank where you feel like we are in the market cycle right now? What you’re kind of feeling on things? I know Birmingham is kind of boring and it doesn’t change a whole lot but you’ve lot of connections in other markets. So you know what’s your take on where we are in the market cycle?
MP: Well I think we’re real close to the top. In fact, I just got back last Thursday from a mastermind that I belong to that has over a hundred real estate investors from around the United States just like myself. And those guys in California are pretty much all switching to wholesaling because you know when you go to fix and flips, if you’re doing a California high dollar fix and flip and make sure you know who’s going to buy it on the other side and they’re getting a little concerned about whether the market going to turn down again? So you know if you’re there- if you’re in Salt Lake, you’re in Denver or even Dallas. You know a lot of those markets are pretty hot right now. I mean, they’re so hot then when somebody puts a house on the market, it’s snapped up, a lot of times in a matter of hours and, if not, days. Birmingham is not like that, is just kind of plods along. There’s about 10,000 houses a year that are sold in Birmingham. And you know that includes all of them, the investment houses as well as the people that are owner-occupying houses. But you know, yes the market has gone up some but it hasn’t gone up very much. I mean again the house that I sold 2 years ago for 59,900 is now selling for 62,900. So, you know how much inflation is that in 2 years it’s almost nothing. And you know, the rent went from 800 a month to 825. So, that didn’t go up a lot either but I mean at 825 at $62,000 that house will cash flow really well. So, and one of the things that I actually believe about real estate is that it’s very local because you can’t even take Huntsville and Birmingham and say that they’re the same market. They are really not close. In fact I studied the 3 major markets in Alabama well actually 4 including Montgomery. And there all 4 are quite different. We still like Birmingham the best for our business model. But I think that you know there’s a lot of sense that we could easily tip over here fairly soon and it could decline again especially in those markets where appreciation has taken off like a rocket. Even Atlanta which is only like 2 hours away which has taken off like a rocket. I mean the turnkey providers are having a hard time finding properties that cash flow well there because it has gone up so much. So that’s my sense in what’s going on out there and that’s from talking to a whole bunch of real estate investors last week that came together for 4 days to have a meeting.
FB : So, you know you started your business or you went full-time in the business kind of on the downslide from the peak. So, you know what did you learn during that time that might be applicable to forecasting ahead to think that you know if we feel like things that are kind of nearing the peak we know that it’s going to turn down eventually. Give us what just kind of what worked and what could potentially work next time things kind of head down?
MP: Well, one of the things that I have done really to kind of prepare in my head for a downturn is talk to a number of other turnkey providers around the country that have been in business longer than I have. And I realized one I talked to has been through 3 down market cycles. And what happened is that if the owner, let’s say the house goes down from $80,000 to $70,000 and the rent is $900 a month. Well, the rent is going to continue to be $900 a month. And if you don’t get nervous and flinch it will still cash flow just like it did you know the year before when it wasn’t a down market. So, what I really like about our model is that it’s fairly recession proof. The rents typically don’t decline along with the value of the house and then you just wait for the value of the house which usually comes right back up again. But in this market it doesn’t even go down that much to start with. As opposed to, you know, I have family in California who are in the real estate business and during the last downturn they saw house prices go down 50-60%. But now they’re right back before where they were before the decline. So, you know the question there is in which side of the wave are you on? And I’m just saying that the waves in the market are pretty small and that’s what I like about our model that you’re not going to get those big tidal waves that are going to wash over you and just because the bank is not going to call a loan where the house is only going down only 5 or $6,000. They’re just not going to do it, as long as you are paying the mortgage they are cool, you know.
FB: Great point. We hit this a little bit earlier. You know if we have somebody that is new to our meeting and they just wanted they hadn’t invested in real estate before. But you know what would be some easy ways for them to start off? What do see as easy ways, easy entry points?
MP: Well, the easy entry point is obviously the private lending side. Because when we do a private lending mortgage we do it for 6 months. So, really when you’re committing the money to that mortgage you are only committed for 6 months. And the return rates is pretty good and you can get out and make another decision 6 months from now. You know of course a lot people like the feel of having a piece of real estate and a title in their hand. So, that’s the other side of it and it’s pretty easy to buy a turnkey house. And I always described it as a little machine in Birmingham that spits out money every month. Because that’s really what it boils down to and it’s fairly easy to do that too. Now, a lot depends on the age and the amount of capital the investor has but even if you don’t have much capital you can get into a house in Birmingham for let’s say $65,000-$125,000 with 20% down on your first house and you’ve got a little cash machine in Birmingham that spits out money every month. So, those are really probably the 2 kind of easy low level ways to get in, but what I would say about the buying the house part is that you really need to make sure that you are ready to do that for at least 5 years. Because I always tell people if you don’t think you’re going to own the house for 5 years you shouldn’t buy to start with. So, it’s more of a long-term look at what you’re going to do. And you don’t have to commit that you know you might take a 30 year mortgage but you don’t have to commit for 30 years obviously just like your own personal house.
FB: Yeah I agree with that. Private lending is so easy and then it’s the turnkey model for investing I think that’s so easy. Especially now a lot of our listeners if you have high income and they’re bankable, to tie up that money and leverage into a 30 year mortgage at low rates today with a small amount down. It really makes a lot sense. And working with somebody like, don’t try to do this in your backyard but working with somebody like Merv who’s got the process already down in the management I mean it makes it really simple. And it’s a little money machine. It just writes you checks every month. So, that’s fantastic. So let’s talk about something that is not your area of expertise but self-direction with IRAs a lot of investors don’t even realize that they can use qualified money to invest in real estate. So, I’m asking a rhetorical question here, do you have a lot of real estate investors that come to you with a qualified self-directed IRA money?
MP: Oh yes we do. We have a lot of them especially those that are over 50 that have been putting money in their IRA for a long time, you know. And of course, the advantage of self-direction is that you decide what you get to invest in of course then you got all the tax benefits on the backside. So, I mean I have investors that do all of the above. They do the private lending through their IRA and we have provisions for that. Takes a little longer to get all the paperwork done but we get it done. And I might mention that we actually do the paperwork on all that stuff. You don’t have to worry about it. You’ve done that often enough Forrest you know I just send you the documents and away you send them to your self-directed IRA folks. But people also buy houses in their self-directed IRAs as well. So, we have a number of people that do that really. Especially if they’re still in their high earning and high income part of their life. You know they don’t want to pay all those taxes from their income at that house brings or that the private mortgage brings. So they use that and they get tax deferment.
FB: Yup, that’s great. Just to hammer home that point. So that income on that private lending deal if it’s done in a self-directed IRA, if it’s a tax deferred you don’t have to pay tax on that money until you take it out. Or if it’s in a tax free account such as a Roth IRA or an HSA or a Roth 401k that money is not going to be taxed. So, there’s lot of different ways to do that. So Merv, do you think that real estate investing is riskier than stock market investing? Because everybody says that the real estate market is really risky, it’s crazy.
MP: Well, I would say this Forrest, if you don’t know what you’re doing that’s true. But if you’ve done, we’ve done over 500 homes here in Birmingham over 7 years and I just don’t see the risk. We’ve got a machine here that does this I mean our rehab crews the way they do things. I mean we have standards and we’ve been able to drive our cost down because we do all the volume. I think real estate is a very, very solid investment and I think Wall Street is scarier as all get out to me. I’ve lost way more money in Wall Street than I’ve ever lost in real estate. And I have made up way more than that I mean I’ve made a lot of money in real estate. And continued to actually because of the real estate investing that we are doing.
FB: But you did have a good point there. It can be very risky and you can lose money if it’s done improperly with the wrong people or in the wrong markets or at the wrong time. I’m not trying to minimize the risks, there’s risk in any investing.
MP: Yup, but I think the point here is. If you are network with people who are experienced and have done this many many times over the period of many years. You start to minimize the risk dramatically.
FB: Perfect point. So, let’s see Merv do have a favorite book? Or favorite quote? Or something that you want to share with our listeners?
MP: My favorite quote is this: “ You’re never wrong to do the right thing.” And I know that it’s in a movie. But I’ve kind of tried to live by that. And I’ll be honest with you we’ve tried to do that with our business, we’ve try to bake that into our business to make sure that we are always doing the right thing even if it hurts sometimes. So we try to run our business that way because you know sometimes in this business especially and there’s… I know investors out there that just don’t do the right things sometimes by the people that they’re associating with. We try to do that all the time is do the right thing.
FB: Very good, very good. What’s your definition of Freedom?
MP: Well the ability to choose what you want to do when you want to do it. And be able to do it and have to resources to do it that’s my definition.
FB: Very good. Well, I should have said this earlier. You’re going to be in our even in July. Thank you for coming. I’m excited. And if you’re listening today and you like what Merv was saying and you want to know more about it he’s going to be at our event at the end of July. Our HIgh Speed Alliance meeting, so thank you for coming. If our listeners wants to get in touch with you Merv, how would you recommend that they contact you?
MP: Just actually you can just go to the web and look up Alliance Wealth Builders. We’ve got all kind of stuff out there on the web. They can just email us through there, contact us. And would get a phone number on there. So anyway that they would like to contact us.
FB: Excellent, excellent. So we’ll put the alliancewealthbuilders.com. We’ll put that in the show notes. And just if you want talk to Merv you can reach him through there or better yet come see him when he’s up with us. So, we’re going to transition into our members only session here. We’re going to go a little bit deeper on some of these topics. So I’d like to just say thank you Merv for being with us today buddy. Looking forward to seeing you in a few short weeks.
MP: It’s not very far away. Looking forward to seeing you Forrest.
FB: Thanks. For our listeners you have been listening to the High Speed podcast. Thank you so much for listening. If you haven’t registered for our event, please do it. It’s going to be great. We’re looking forward to it. We have a very good response. We’re going to sign-off for now. Merv, don’t go anywhere we’re going to our members only session here. So, thanks for listening to our podcast.
You’ve been listening to the High Speed the podcast. To read our blog and to learn more visit our website at www.highspeedpodcast.com