Episode 56: Painful but Valuable Lessons with Lee Kearney – The Mentor Podcast

Ron: Well hello everybody, this is Ron LeGrand back again with another exciting episode on the Mentor Podcast today because I have a very special guest, whom you’re going to love if you want to make REAL serious money. Our mission is to help you make more money, make it faster, make it easier, make it without risk, and make it last long enough so you can retire very, very wealthy. Our guest today is certainly dedicated to that mission and his name is Lee Kearney. I don’t know anybody who knows Lee as well as Lee knows Lee, so I am going to let him tell us who he is and where he comes from today. For years I’ve been telling people if they get out of their own way and let other people do most of the work and look at this like a real business – NOT just like a few real estate deals – that their lives would change and there is nobody better than that but our guest. Lee, welcome to the podcast!

Lee: Thanks for letting me on your show Ron. 

Ron: Alright, give us a little background on where you came from, how you got started, and where you are at today – because man, you are in a position that most people would envy today. I haven’t known you all that long, but what I do know of you is that you are a guy people should pattern their businesses after. So your message is turning around a few real estate deals into a real estate business, correct?

Lee: Absolutely, yes. Systems, processes, and people have been the bases of my success, but as you requested, I’ll go back to the beginning to where it all started. So back in 2003, I actually flipped a condo by accident. I was living in Ireland (which is where I am from) after I just finished my degree in the States and bought a penthouse. It got broken into, hated it, put it back on the market and in three months, made more money on that property by accident than I did at my current job at the time. For me, that is when the lightbulb went off. A complete accident and 35,000 euro in my pocket and I said, “This is amazing. I didn’t even mean to do this. I recognize that I have stumbled across something special.”

I moved back to California in 2004, and one of the first things I did, without realizing I was looking for a mentor or coach, was to find somebody who did real estate. It ended up that a guy I went to church with did real estate and flipped houses, which is exactly what I wanted to do. I asked him, “How can I help you?” and he replied, “We can go to Home Depot and we pick up supplies…” and I trailed this guy for weeks! He showed me where to buy, what price to buy, and basically how to do it and how much money to put into the house. I learned that one of the biggest mistakes somebody does, in the beginning, is put a whole bunch of money into a house, they don’t get it back, and they are completely disappointed. So really just with a blessing, right at the beginning, I had someone to hold me by the hand.

So, I spent a couple of months after college (I was taking my Master’s course at the time) looking at nights, found a house, and did exactly what he told me to do. Exactly to the T! I was so scared. He told me to put down sod since we are in southern California and said, “If we don’t put down sod, you won’t sell the house.” So, I did exactly that. I sold the house the first day exactly how he told me to do it by putting out a bunch of signs, doing an open house, get competition – literally everything he told me, I did. It was fantastic. 

I did another house in California at the end of 2004, decided to move back to Florida and on my second deal, I made my first and second mistake. I hired a friend to do the rehab, and I tried to rehab a house in California from Florida, and it was a complete and utter disaster. Somehow, I stumbled out of that house with a small profit, and now I am in Tampa, Florida – so again, I asked a lot of questions. What I will say to everybody out there, Ron, is don’t be afraid to ask questions. So many people think they have a dumb question, or that they should know it, or they will try to figure it out themselves, and they can do that, but that is a very long journey in real estate. That’s why I have students come after hearing me speak, in my 20 years, and say, “I wish I had done this the first time, I wish I had talked to someone like you.”

Ron: *Chuckles* I understand that.

Lee: It’s because they have done it the hard way and they think it’s a grind, and real estate is a grind if you do it all yourself.

Ron: Lee, they’re men, they have testosterone, it’s not their fault! There is no way they are going to take directions because if it is working perfectly, it’s got to be fixed. 

Lee: Exactly, exactly. Do you know what’s funny? I’ve always been humble, and I think that’s one of the other pieces of the “secret sauce” that made me successful is that I asked those questions at the beginning. Lots of questions and detailed questions, because I recognize that I didn’t know and what I found I attracted some really high players since I did not have an ego, I was helping their business, providing value, learning along the way and that’s a beautiful thing. So, I found my friend’s father, buying at the courthouse, and I am asking questions – What is a courthouse? What is a foreclosure? I didn’t know any of this stuff. So, I quickly became, by asking a ton of questions and getting smart mentors in my life early on, one of the biggest courthouse buyers his Hillsboro county. Now fast forward to 2007, I had now made about 2 million dollars in about two and a half years in real estate. Now what happened to me in 2008, I went from 2 million dollars to negative 2 million dollars, and I literally lost everything. 

Ron: Now Lee, you are the only person I have ever heard that story from you know right? At least this morning so far.

Lee: Absolutely, well, everybody is perfect, and nobody has a bad day, right?

Ron: Yeah right, you know what I call that Lee? I call that “training.”

Lee: You are absolutely right, Ron! It was the most humbling “training” I’ve had in my entire life. At 27 years old, I had made and lost 2 million dollars, went back to square one, and I had to tell my wife that we were broke and couldn’t pay any of our bills. I will tell you, that one of the biggest mistakes that took me down, and I know you are very big on this, I took on a bunch of personal debt and a rental home that I was not cash flowing. Stuff started break, the economy started to crash, I couldn’t flip houses to make a profit, and I started running on a negative cash flow on my rentals… My world crashed literally overnight. By the grace of God, I did not have to file bankruptcy, but I had a bunch of short sales and essentially had to start back at zero.

So, I looked back at where I went wrong. A) I was flying by the seat of my pants. B) I had defined myself as a rehabber when the market was telling me the complete opposite. It was the perfect time to be wholesaling houses because there were a lot of risks in the market, but instead I had positioned myself in the riskiest end of the market. By the way, if you make mistakes, you should then do something completely different. I said, “I am going to look at the Market, see what the opportunity is, and THAT is what I am going to do.”

So, when I looked around in 2008 and while everybody was running for the hills, I realized that wholesaling was the best strategy. You can buy houses dirt cheap and you can sell them to other investors for cash. I was making five to ten thousand dollars per home. Fast forward to the end of 2008, my first year after losing 2 million dollars, I was back up a million dollars. So I was in and out of properties, risk free, selling houses before I closed on them, and it was fantastic. From then – it’s been history. I have made an entire change to where I have a Market driven approach to real estate, create a team, find the opportunity and learned how to capitalize on it.

If you have a business, you need to have a strong team behind you. I made a big effort in people as well as the business.

Ron: You are correct. Let’s skip forward to today and then go back to how you got here.

Lee: Sure! So, we buy and sell several thousands of homes, my last count being 7,500, and our record year was 2,500.

Ron: In one year?

Lee: Yes sir! I have owned over 300 rental properties, but with the big run up in prices, one of my mentors really drilled into my head about market cycles. What he said to me was interesting, “It’s not important what is at the bottom of the market, what’s important is what is at the top.” And so, I recognized what the core amount of my rental properties were approaching peak pricing so the stuff that we bought several years ago, we just finished selling. I went from over 300 rentals to 3. I am positioning myself for a correction in the market and I realized that every real estate market is different. There are things like interest rates that do affect us nationally, but in Florida for instance, it is a secular state. By nature, real estate goes up and down. It is an investor driven market and it can be a very predictable market to be in. By knowing this, I must adjust to it. I see it so many times where business owners do not want to change, but they NEED to change, or they will go out of business. Look at Blockbusters for instance, and I don’t want to be like them. All you have to do is pay attention to the market and make sure you are going with the tide. It’s a multi-trillion-dollar market, you are not going to beat it. You must figure out how to capitalize on it.

Ron: Yes, and move with it. So how many houses do you buy a year now Lee?

Lee: Our volume has slowed down to about 300 on the purchase side, so we will do about 600 transactions this year. I am very attentive to the Market conditions and what we are working right now on the software side of things, because I recognize the market is changing is south Florida and is heading this way, and I want to make sure that we go back to a foreclosure and pre-foreclosure option driven approach to real estate and so I am shifting my attention. Since I am in the building phase of that, I am making sure I do not chase every deal, and that is our business model.

Ron: Alright, let’s clarify now. What do you see changing in your Market place that is going on South of you?