Why Vertical Integration is Crucial for Growing your Business with Josh Wilson

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What is it like to make a ton of money and grow companies that weren’t yours? Our guest, BRRRR method expert Josh Wilson, knows what that feels like, and it became the turning point for why he started figuring out ways to buy real estate. In this episode, Josh talks about how he started in property management. He shares how he discovered the BRRRR method and incorporated it into the vertical integration model. Over the years, Josh has turned $150,000 into over $15,000,000 using the BRRRR method. He now runs a BRRRR Bootcamp that helps other budding investors learn the ropes of the business. Join in and learn how he does it!

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Why Vertical Integration is Crucial for Growing your Business with Josh Wilson

I’m joined by Josh Wilson. Josh, thanks for being here.

What’s going on, Tim?

It’s just another beautiful day in Dallas, Texas. Why don’t you take a minute to say hello to everybody? Tell them who you are.

I’m Josh Wilson with the BRRRR Bootcamp. We teach the BRRRR Method. In addition to that, I got started in real estate by learning how to do property management and how to be an operator when it came to real estate. I stumbled upon the BRRRR Method several years ago. That is where everything blew up for me. I was your traditional investor that was doing your 20%, 30% down payments, then found out about the BRRRR Method, and completely blew up my portfolio.

My wife and I have been BRRRR-ing since before it was cool. I love that we get to talk about this because it’s one of those no money down things that people don’t understand. I like to start these episodes with what I call the BLUF, the Bottom Line Up Front. When I was in the Marine Corps, I would brief generals. One of the things they used to tell us was, “You’ve got to make sure you say the most important thing up front in case the general needs to leave.” What are the most important real estate trends we’ve faced now? Where do people need to be focused?

One thing you’ll hear me say a lot is vertical integration. That is what I have founded and been able to build my companies on. When I say vertical integration, what I mean is I have a property management company. We have a rehab company. We also have a sales brokerage and an acquisitions department. We are vertically integrated within our companies. We are now able to essentially take the entire process and put it under one roof.

From an efficiency standpoint and economy scale standpoint, it is massive to be able to scale a portfolio. Without that vertical integration, we would not be able to take a $150,000 loan that we started out with as our private money loan and BRRRR-ed it all the way into over a $15 million portfolio. It is higher than that now. We’re growing by the millions about every couple of months. It is massive. Vertical integration is huge. It’s one thing that I’m an advocate for. I teach a lot about it.

I love the concept of vertical integration because whether you’re doing $1 billion a year in business or $1,000 a week in wholesales, the more of the transaction you can control and influence. Even more, you do not rely on someone else. One of the worst things about this business for me is that so much of your word depends on other people’s performance.

Even down to my new details when it comes to maintenance or rehabs, we’re in an economy where contractors are not around, not available, or their prices are too high. When you have vertical integration, you are able to take that rehab piece. We have our own in-house team. We are in control of how fast our projects get done, on time, and under budget. That is huge for us.

Let’s go back in time. Clearly, you are a Harvard-educated quantum engineer that has figured out how to create words like vertical integration. I would like to know more of your story, how you got here, how you ended up doing this, and where you think that you can help people that are reading.

It all started back when I was a kid. There was a guy on the TV by the name of Brad Richdale. He sold these infomercials about all these yachts, jets, and everything on the TV. I was seven years old. I told my dad one day, “Dad, I want to do that. I want to own a yacht. I want to own a jet.” My dad was like, “Okay, son. Whatever, no big deal.” I told him, I was like, “I will work. I’ll cut grass. I’ll do whatever it is. Can you buy me the infomercial? Buy me his little cassette recordings.” He bought me the actual infomercial.

I then took that and went to my mom’s office. She was a secretary at the time. I took it and I photocopied it. I put them into manila envelopes. I went door to door and sold them for $100 apiece. I took his information. I had no idea, but that was the entrepreneur in me. I was trying to take a product, go out, resell it, and make money. That started my spark. That flopped and only lasted for a week.

My wife and I were sitting around fifteen years later. She was like, “HGTV, look at these people, flipping houses, and doing all this stuff.” I had a little bit of a bug. I had an itch. I wanted to get into real estate. The only way for me to get into real estate was to learn how to manage properties. I didn’t have any money. I was broke. I ended up working for a property management company. A year later, the entrepreneur bug came back into me again and said, “Josh, you can do this by yourself. You can change it. You can make changes and do it better.” That’s what we did. I started as a property manager and everything took off from there.

This was all in The Hamptons, right? Where your family was wealthy?

No. We were living in a rental house. I remember sitting in the two-bedroom rental house that we had. This was in New Orleans, Louisiana.

It’s known for its wealth and high education.

I’m a college dropout. I went to college. I got about $30,000 in student loans and then did two years, partied hard, and then I was back trying to figure out what I was going to do with my life. I then went into real estate.

It’s interesting. You got into it by becoming the boss and being completely in charge. You never worked your way in this business. You started out as the guy in charge of everything.

I tell people this all the time. I have this one on a t-shirt now. It says, “Terrible employee.” In every single job that I ever worked at, I got fired or quit because I was a terrible employee. That’s when I always knew I wanted to be an entrepreneur.

I tell people and my sons all the time, “You don’t want to be me. You want to be where I am now.”

They see the result.

I was a teenager in Texas summers, learning how to roof and frame houses. My stepdad and I were going to get up and go to work at 6:00 AM. When I got into this business, it was as an acquisitions manager for a HomeVestors guy. Many people want to step in and be the top dog.

For me, it was operations. That’s how I built my foundation in real estate. Had I not learned how to manage properties, I would have not been able to build and scale the portfolio that I have now. That has been huge for us. It was grunt work. It was cutting grass, learning how to paint properties, learning what a make-ready was, learning what happens when the AC leaks onto the ceiling, and the tenant saying they have a roof leak. “It’s not raining outside.” If somebody wanted to come into my shoes now, they would never know all of the grunt work and information that I learned over that time.

I want to talk about maybe ways people can skip the headaches that you and I had to go through. I want to talk about interest rates and how you see that impacting residential rentals and the BRRRR Strategy. I want to talk about vertical integration and the different things that you’ve found should be in-sourced versus outsourced, and then talk more about what you see happening in the business. Let’s go all the way back. You’re working at the property management company. You decide you don’t want to be a career property manager. Talk about what led you to the next step in your entrepreneurial evolution.

I didn’t want to be a career property manager. I’ve decided that we were managing properties for other people. The time that it hit me was when I was sitting there looking at my wife and we were making a ton of money. We’re on the come-up. We were growing the management company, but the problem was that these were not our properties. We’re making this money and then all of a sudden, one owner or one client would pull out. A couple of grand goes away for one month. I told her, “I never want anybody else to be in control of my financial future.”

That was the day that I started to invest myself. I was buying still at 20% and 30% down payments. I’m looking at myself, calling my bankers like, “There’s got to be other ways. How can people buy all this real estate and they’re saving up 20%, 30% every single time?” My banker at the time told me, “Josh, I want you to earn your stripes. You’re still green. You don’t know enough yet.” He was giving me loans way back in the financial crisis. That’s when I started, right before the crisis hit. He was still lending to me, but he was giving me LTVs that were at 65%, 60% LTV. They were taking a risk on me, but at the same time, I was also taking a risk because I was putting so much money out.

You said something interesting. I want to drive on that. When I was in the Marine Corps, I made $1,810 a month as a sergeant. I got an extra $100 if I went to combat for that month and then the whole thing became tax-free, which was great money. You could drink a lot of beer in and eat at the chow hall. It worked out well. When I got out, I decided that no one would ever tell me what my time was worth again.

That is almost the same thing you said there. I’ll never forget my first commission job when I made $6,000 in a week. The next week, you make $6 and then you remember. That’s another conversation. You’re getting all these loans. You’re buying all these houses. You’re putting massive down payments. You discovered another strategy. Talk about that evolution.

It was slow, painful growth, just trucking along. I picked up maybe my first private money lender at the time, but I was still saving that 20% or 30%. I picked up one private lender to partner with me on the equity side. She put up the money. She partnered with me on the equity side. She didn’t like the up and down rollercoaster of getting rent one month, getting the payment direct deposit, and all of a sudden, “We had a toll that explode. Sorry, we’re not getting a draw this month.”

She then said, “I want to lend you money and you go do the deals.” I called my banker at the time that was still giving me loans. I said, “There’s got to be another way. How can I expand this portfolio? I can’t keep doing this.” He told me, “Josh, have you ever heard of OPM?” I already did because I was using the other money from the private lender. He said, “You need to learn how to use OPM with the BRRRR Method.” This was my banker. He’s an older guy. I still bank with him.

Did he use the term BRRRR?

He used the term BRRRR. I researched it. I found out more about it. I started buying properties undervalue. I started pushing the values up via renovations. The magic started happening. It was like a light bulb clicked. I was buying all these properties. My friends were asking me, “How are you buying 6 to 7 deals a month and keeping them?” I was like, “I’m utilizing the BRRRR Method.”

I would have people start asking me, “Do you want to go to lunch? Do you want to go to dinner? Tell me what you’re doing. How are you doing this?” It exploded. Now we’re doing anywhere between almost 9 to 10 deals a month. We’re doing bigger deals now. We still do single-families, but we’re doing now up to 20 units. That’s our buy box. 1 to 20 units are what we feel comfortable with. It works for us.

You’re borrowing all this money. Surely, you’re living off the refinances.

We don’t take out any additional funds other than what we are other than what our hard expenses are. We’re not pulling out additional equity. We’re pulling out up to 75%, but some deals are at 70% because we don’t have that much expense.

How do you make money?

My rule of thumb is $100 a month per unit. You’re looking at me like, “No way,” but that’s my conservative way of doing it. That is my paycheck, the cashflow. There are some other little ways that we try to massage it with vertical integration. The vertical integration is also key to being able to make additional funds within the BRRRR Method as well.

It’s important because many investors specifically may be newer or a little bit more old school. I grew up in the era of, “Get your houses paid off. Pay them off.” They may be worried like, “If I take all that debt, how am I going to pay the debt? How am I going to live or pay my expenses?” Talk about cashflow from these rental properties, maybe not overleveraging, and that part of your mindset.

When it comes to overleveraging for us, the vertical integration is huge because I am in control of how my properties perform. We went through COVID, oil spills, and hurricanes. We got smacked in the mouth. Had I not had the vertical integration, I probably would have never been able to survive those events. My team is aligned. If I had to go outsource and hire another property manager to do all those things, they’re going to operate the way they want it operated. We’re operating the way we want it.

How do you make sure you don’t overleverage? I don’t think a lot of people understand, like, “If I borrowed too much, then my payment will be too high.” How do you balance that?

We have a buy box that we stick to. It’s strict.

Is this like a cardboard box?

It’s a little box that we draw out. We got a little box for LTV. We got a box for cashflow. We have a box for the amount of unit size that we buy from.

Does it have to meet one of them or all of them?

It’s got to check all the boxes.

That’s where we’re going. You’ve developed a checklist, in essence, of different criteria, not just can you borrow all your money out of it, but can you borrow your money back? Is it the right location or type? Does it cashflow?

My minimum cashflow is $300 a month on a single-family home minimum after all expenses. I’m talking about all expenses, like vacancy, repairs and maintenance, CapEx, and property management. That’s another thing, property manager. We pay our property management company a fee. That’s how we’re able to grow and have the systems in place.

In addition to that, we have that LTV requirement. We make sure that when we go to refinance, we’re going to be able to bump up to that LTV and not go over. We’ve got to make sure our ARVs and the cashflow are in alignment. That’s huge. On a multifamily property, anything over two units, our rule of thumb is it’s got to cashflow at least a minimum of $150 a unit or more. That’s how we stay in alignment.

We’re only pulling out $100 a month. We already have CapEx reserve. In addition to that, we have excess that’s building each month. At the end of the year, my wife and I sit down. We look at the actual twelve-month cashflow report. We are either going to have a surplus or we’re not going to make anything. The great thing is that I’m able to pull $100 a month. At the end of the year, I can decide, “Do you want to go buy another property? Do you want to go to Italy? Do you want to go to Europe? What do you want to do?” We usually have a nice little surplus, but it’s a safety net for me. I feel comfortable every month going to bed, sleeping at night, knowing that I’m conservatively pulling out a little bit of money.

Number one, clearly, it’s not a hobby for you. You’re running it like a business. It’s intentional. I love talking to entrepreneurs that are intentional. Tell me all the different pieces that you vertically integrated into your property business.

The number one piece is the property management side. This is huge because we’re now able to do virtual showings and self-showings. We were doing self-showings before COVID. COVID hit. Nobody wanted to interact with each other. We were already doing self-showings. We didn’t miss a beat. We were leasing properties faster than before. That was huge for us. It’s having the property management piece and being able to lease properties quickly. In addition to that, having the maintenance side built into the property management side. That is a massive expense on the P&L sheet when investors are investing in rental properties. We’re able to control that cost by having in-house teams.

I was an HVAC guy. We have make-ready teams. All those things are crucial to be able to perform at a high level and get the numbers that we need to at the end of the month. In addition to that, we also have company. When we go do our rehabs on our properties, we are a licensed home improvement contractor. We can go and do work up to $75,000 in the state of Louisiana. That’s what we do. We do all of our own in-house stuff.

We have subs in case we fall behind. In addition to that, we have a sales brokerage. My wife and I buy properties. We’re at 30,000 feet up in the air. We’ve done deals. She’s looked up the comps. We said, “These are the real comps. Here are the ARV comps.” She looks at me, “It looks good.” I signed the DocuSign document on there. I’m wiring the money as soon as I land. Having those pieces available to us is crucial to our growth.

One of my favorite things we do every episode is called the Money Minute. I’m going to make you tell the reader the most important thing they can do to make more money in their real estate investing business. It’s time for the Money Minute. Josh, take it away.

If I was starting out again, trying to figure out ways to grow my portfolio, it would be via OPM, Other People’s Money. That is the massive way to scale your portfolio. You can do it by networking, utilizing your inner circle, going out there, and finding people that may have money in accounts that you don’t even know about. I’ll give you an example. I use Facebook or social media to raise money.

I’ve raised $2 million from social media from people that I’ve never met before. It’s because they see the process and the journey and they’re interested. I would say, too, is document your journey. Go online. Put yourself out there even if you don’t want to. You will be surprised at the number of people that would be interested in partnering with you along the way.

We’re going to do a little rapid-fire. I like doing this because I hear people like you talking. I have these little questions. What’s going to happen to interest rates?

They’re up. The Fed can’t keep going at the way they’re going. There’s going to be some wall they’re going to hit. They’re going to have to balance recession over inflation. We’re getting to that point where that little 0.50% bump that happened, we’re going to start feeling it a little bit more coming in the next couple of months. They’re going to have no choice but to slow it down.

The Facebook economist will tell you that the bubble’s going to pop. Wait and buy at the bottom. Prices are coming down. Are we in a bubble?

No. The reason why we’re not in a bubble is that I had to make the decision with my wife on whether or not we were going to spend $150,000 and renovate our backyard or go to the market and find out an upgrade to something else. We have a 2.87% mortgage rate on our house. For me to want to leave, to go buy something else, you got to pull me. I didn’t find anything that I could upgrade to that was worthwhile. When you have a crap ton of demand and low supply, we are where we are.

Supply and demand. Everyone wants to talk about global supply chain issues. In my opinion, one of the biggest problems is no one wants to work, but everyone wants to spend. How is supply and demand impacting your businesses?

We were struggling a little bit on the hiring front. When it comes to having maintenance workers, we probably could hire about 2 or 3 more maintenance workers right now, but because of the economy and where we are with the workforce, it’s crushing us. We’re getting by. We’re able to utilize other folks in other subs to get done what we need to be done, but it is different than when it was in 2018. I can tell you that.

I like talking to people that are street level and getting the real pulse of the street. How many more houses would have to be built to stop the shortage? Do you think it ever happens?

I don’t think so. The other thing I was talking with somebody about is population. We’re talking about the Millennials not making as many babies as our generation was. I told him, “We need more babies. Everybody, keep creating more babies because the more the population grows, the more it’s better for real estate.” I’m an advocate for people to make more babies.

Josh, why did you get into teaching others to do this?

It was honestly because it got to a point where I had so much knowledge. I’m trucking along doing deals and having fun in real estate, but I still felt like something was missing. I told my wife, “I have people that ask me all the time how I do my processes, my systems. They’ll take me to lunch. They’ll take me to dinner. We go have coffee and we talk about deals.” It got to a point where it was becoming overwhelming. It was starting to become a side job and I wouldn’t get paid for it. I told her, “My cup is not full.” When I started doing that and giving people knowledge, wisdom, and experience because of the mistakes, I made a ton of mistakes in the past several years I’ve been in real estate. I know the game. I’ve been there, done that. Now, teaching has allowed me to fill my cup moving forward.

You’ve made a ton of mistakes in your career. What’s your biggest mistake?

I would say the biggest mistake is not starting the BRRRR Method sooner. If I’d started the BRRRR Method in 2007 or 2008, my portfolio would be three times as large as it is now.

Other than your wife, because apparently, she’s the one that tells you what to do and gives you all the good ideas, what’s the best decision you’ve made in this business?

The best decision was to do the BRRRR Method and the vertical integration because that has allowed me to scale my portfolio. Had I not had those things in place, I would still be trucking along saving 20% down payments.

What’s the number one mistake you see your students make?

Being too aggressive. Sometimes they want to go and want to get a property under their belts so fast. Sometimes we got to pull the reins back and say, “Let’s analyze and underwrite the deal properly. Make sure we’re checking all the boxes in the buy box and then we go in and make the offer.”

What’s the most money you’ve ever lost on a home?

I’ve lost about $52,000 on a flip that we did a few months ago.

The expert in the room is flipping a house this time of the cycle and losing money. I only invite real people on here. I knew that you had lost money because we all have if we’ve been doing it long enough. Anyone that says that they hadn’t, I don’t believe. Talk about that. Was it because of materials? Was it labor? Was it a hurricane?

We undershot the renovation budget. It had foundation issues. The foundation blew us out of the water. We had to sell it to get rid of it.

That’s cutting bait. I tell people all the time, “You cannot rehab your way out of a bad buy.” As a lender, people will bring me a deal that every other lender in town has passed on. It’s like, “My private money lender funds $20,000 a month for me, but he doesn’t want this one.” Parting thoughts, parting shots, tell everybody how to get in touch with you. Phone number, email, website, how do we reach?

For new investors out there looking to get started or even seasoned investors, the one thing that I have found that has worked for me is whatever you do, do it consistently. Don’t do it once and then it doesn’t work and then give up because you’re like, “It doesn’t work.” Do it over and do it over again. Be consistent with it. I promise you you’re going to see the results that you’re looking for. As far as going to talks with me, I’m all over social media, The Real Josh Wilson on Facebook, @TheRealJoshWilson on Instagram. Believe it or not, my kids got me on TikTok. I’m on TikTok now @RealJWilson as well. Hit me up. I got a lot of awesome content and videos. We do bootcamps every month as well, BRRRRBootcamp.com.

Good deal. Take your time. Don’t be too aggressive. Be consistent. Those are the things that I’m hearing you say that anyone reading needs to focus on.

Especially in the market that we’re going into, take your time and other people’s money.

Everybody, thank you for reading. Remember, your network is your net worth. You’ve been growing both. We’ll see you soon.

Important Links

• Josh Wilson
• The Real Josh Wilson – Facebook
• @TheRealJoshWilson – Instagram
• @RealJWilson – TikTok

The following podcast program is furnished by RCN Capital LLC.  The information provided is for general educational purposes only and does not constitute any legal, tax, financial, investment or other professional advice. The views, thoughts, and opinions expressed of any speaker are the speaker’s own opinion and do not represent the views, thoughts, and opinions of RCN Capital LLC.   No information contained in this episode should be construed as financial, investment or legal advice from RCN or any individual, author, host or guest. You should always consult a financial advisor before investing.

• BRRRR method
• flipping houses
• other people’s money
• property management
• real estate
• vertical integration