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Monday, June 28, 2010

Haves & Wants

We hear it at every meeting. "Come on up and tells us what you Have or what you Want!" Well, maybe some people 'have' something you don't 'want'! That something might be socially unacceptable and they don't necessarily find any urge or need to stand up in front of a crowd of strangers and tell their secrets Mr. Host!

Of course, we are not talking about the Haves & Wants of the skeletal nature. I am sure the internet can assist you with most of that stuff. We are discussing hopes and wishes, needs and desires usually from a business perspective.

"I am looking for fixer upper properties in the so and so area, "I have access to some ridiculous deal that needs some even more ridiculous amount of money," announce the attendees one by one. I once heard a white woman announce that she was looking for an investor with a very big million dollar bank roll for a casino deal on Indian land she was working on. I'm curious how that worked out for her. Not to be stereotypical (although we have them for a reason!), but I can see her putting a lot of work into that deal only to end up getting scalped!

I have yet to hear someone stand in front of the room and announce their goals. We all have them don't we? I think these qualify as a Have and certainly believe someone in the audience may be able to assist in some way. Possibly, some people refer to them as dreams. I think so, but only because they don't believe they can actually achieve those goals which in and of itself is sad and unfortunate.

Just once I would like to hear some young brave investor stand in front of the payees and announce their biggest dreams. "I want to make $50,000 a month in passive income. I want to drive an imported high end sports car. I want to fly to Vegas on a privately chartered jet for me and my friends on my birthday. I want to take a long vacation down to Mexico every year with just my family for some sport fishing."

I wonder how the audience would respond.

I have my goals written on a white board in my office;
- Own a single story house with a 3 car garage and a pool in Norco Hills.
- Make $100,000 in one month.
- Make $20,000 per month buying and selling at least one house.
- 43 1/2 more houses to go!

Well, to be frank, I haven't updated my goals for almost a year now and this is highly unsettling to me. I shan't let this daily practice get away from me again I assure you. As I look over my goals I realize I have grown in some areas and lost interest in others. I am not sure I want that house up in Norco Hills any longer. If I do it would be for no other reasons than to throw parties for my investor friends and have a shorter commute to work. I still would like to have a pool. Luckily for me, my request has been answered. Our beloved President Obama has provided the magic money to build an aquatic center just over the hill from my house. I asked for a pool and I got an Olympic sized pool with a small water park included. Much better! As for the house, I have set my goals higher.

I have generated more than $100,000 worth of wholesale fees in one month. Last month actually. However, I had to share it with 2 of my associates. Still not a bad haul for one month of sitting on my ass, playing on Facebook all day and making a few phone calls. I guess I need to be more specific in my goal writing. I bet this guy wishes he had read my blog first:
A man walks up to the bar with an ostrich behind him, and as he sits, the bartender asks for their order.

The man says, "I'll have a beer" and turns to the ostrich. "What's yours?" "I'll have a beer too" says the ostrich. The bartender pours the beer and says "That will be $3.40 please," and the man reaches into his pocket and pays with the exact change for payment.

The next day, the man and the ostrich come again, and the man says "I'll have a beer," and the ostrich says "I'll have the same." Once again the man reaches into his pocket and pays with exact change.

This became a routine until late one evening, the two entered again.

"The usual?" asks the bartender.

"Well, it's close to last call, so I'll have a large Scotch" says the man. "Same for me" says the ostrich.

"That will be $7.20" says the bartender.

Once again the man pulls exact change out of his pocket and places it on the bar. The bartender can't hold back his curiosity any longer.

"Excuse me, sir. How do you manage to always come up with the exact change out of your pocket every time?"

"Well," says the man, "several years ago I was cleaning the attic and I found this old lamp. When I rubbed it a genie appeared and offered me two wishes. My first wish was that if I ever needed to pay for anything, I just put my hand in my pocket and the right amount of money will be there."

"That's brilliant!" says the bartender. "Most people would wish for a million dollars or something, but you'll always be as rich as you want for as long as you live!""That's right! Whether it's a gallon of milk, or a Rolls Royce, the exact money is always there," says the man.

"That's fantastic!" says the bartender. "You are a genius! ... Oh, one other thing sir, what's with the ostrich?"

The man replies, "Oh, my second wish was for a chick with long legs."

Ask and you shall receive. Just be careful of the message you are sending out to the Universe.

Making $20K per month buying and selling at least one house is too limited. Why should I care where the $20K comes from: Moral, ethical, and legal issues acknowledged. To continue being frank, I would rather not have to buy and sell one house every month. I'd much rather sleep late, go to the gym, watch a movie, walk my dogs, and then go to bed. If the $20K still showed up that would be fine with me. However, if you have been reading along, you will know we have now upped the ante a little bit on this one.

We are still working with the same starting number and if you clicked the link in the previous paragraph you will know what that number is. The reduced number is now at 39.25. I've boughten a few recently. (I have no idea how boughten and heigh-th made it into the vocabulary of some people, but I am trying to appeal to a wide audience here.)

Updated/Revised Goals;
- Own a house in Newport and one in Big Bear. Ocean and lake front of course.
- Generate $100,000 of income for my company in one month.
- Generate $1,000 per day, every day of net passive income.
- Buy 39.25 more houses (or enough real estate to produce the above $1,000/day of net income.)
- Read one book every week.

I think they are great goals and totally achievable. Now I need to put a time line on them. Not sure I am ready to publicly commit to that yet. My book reading is going well. I’m a little behind, but much better than I have done earlier this year. I was buying more than one book a week and now I need to get through them. I recently completed Cash in a Flash and am now working on Grow Rich! With Peace of Mind. I want to read some of these inner game books before I tackle some of the business books I have acquired. I am very excited to get to the negotiation stack.

My pile of properties and monthly income has slowly grown since I have started this blog. It all started with the decision to attend my first real estate investing meeting. The greatest marathon, longest journey, and fastest race all start with the decision to commit to taking the first step. At the end of each is a winner and/or a hero. I will achieve everything on my list and more. My goals will be shifted, reset, altered and upped, but never ignored or treated with indifference. What do you want and what will you do about it?

Sunday, May 9, 2010

And The Winner Is...

No matter how good your tenants are, one of them has to be the worst. Just like a race, only 1 person can be first and only 1 person can be last. While I would like to think of most of my tenants tied for 1st place, I definitely know who is in last place.

Late again for the month of May, I posted a 3-Day on his door on the 4th. I give my tenants 3 days to get the rent in. Actually, I give my tenants up to 33 days to get the rent in. The month they move in, the rent is due BEFORE they get keys. After that point, they can pay the next month's rent (30 days early), they can wait and pay it on the 1st every month like most of them, OR they can pay me any portion of future rent up to and including all of it up front for the whole term of the lease. The lease stipulates at what point it is late. I tell them at the lease signing they have 33 days to get the next rent check to me; on the 1st they are more than welcome to pay next month's rent at any time over the course of the month. They can pay it today, tomorrow, next week, two weeks from now, the 25th, 28th, or procrastinate until the very last possible moment on the 3rd. However, on the 4th it is late. I give them 3 days or as my partner likes to say "you have a 33 day grace period," because the 1st may occur on a Sunday and they might not get paid until the 2nd, they might not be able to make it on the 1st for a particular reason, or they might be excited for the weekend (if the 1st occurs then) and just forget. At any rate, they have a 3 day grace period to get the rent to me or at least notify me why it will be late.

My worst tenant again didn't pay his rent. It is ALWAYS a payroll excuse with him. No need to quote any here. I am sure you can make up your own that will be better than his lame attempts. I have another payroll excuse user, but I am informed well in advance of all her situations. She always tell me why she is going to be late, on what exact date the rent will be in, and then emails me to let me know she deposited it. She is very well trained.

I am now in the training wheel stage with this tenant, but diapers would be more appropriate of a description. I posted a 3-Day Notice on the 4th. Today, I followed up with a strongly worded text message; if that is even possible, and let him know, well, here is what I sent him: "Today is your last opportunity to pay the rent. The 3-Day expired on Friday at midnight and tomorrow I am filing at the court house. It is your choice, but if I have to file I am going for breach and possession."

I thought for sure my strongly worded text would elicit a response from him, but I didn't hear from my last place tenant all day. I pulled out my Eviction Book for California and started to get to work on my Summons and Complaint. Good stuff! Luckily, California has some great legal sites online and a very easy to use online document preparer through Turbo Court.

At about 9:30 tonight, I sent his roommate the following text: "Sorry, Tenant, but since you are listed on the lease as a guest and staying in the property I have no choice but to sue you as well when I file tomorrow AM." Within seconds, I received a text from my last placer stating the rent would be in tomorrow by noon. He followed this up with a very defeated sounding phone call with, you guess it, another excuse about payroll and how he would have to go to a check cashing place to get the money. Like I care?

Do I feel like the hours I spent studying my docs and preparing for my big legal battle was a waste of time? Hmmm, not really. I like being a landlord and I like opportunities to fine tune my craft. While I am both happy that he is now aware he will actually be dragged to court and then thrown out if he doesn't pay, I am also saddened that I cannot do the dragging. The punishment is the fun of the crime for the law abiders. I also planned on renting the unit for more than I am currently getting so I am missing an opportunity to create more income.

If you don't have a book like Leigh Robinson's pertaining to the eviction process in your locale, I highly recommend you obtain one. I have manuals for all the states I own properties. It just makes good sense to be aware of the laws where you are doing business.

As for the investing side, my partner started a challenge. He didn't really bother to tell me about it until we were a few days into it. He has set a goal to achieve a certain income over the next 90 days. It was a little shocking to hear the amount, but not unrealistic. I just know it won't be easy. We currently have 4 properties in escrow. We are wholesaling three and we bought those from the same seller of which 30% of the challenge goal will be produced. The fourth is one for our EPP. Still haven't found a tenant for the 1st property in our EPP, but we also don't have the electric meter back from SoCal Edison. Hopefully, we will have a resolution to this ongoing dilemma this week.

So far, May is turning into a very good month.

Tuesday, May 4, 2010

I'm Not Successful Because.... A Fisherman's Tale

I'm not from here and I don't know the people you know.
- I'm not from here either. I have lived here less than ten years. I had to network and meet the people I needed to know which I didn't even start doing up until about five years ago.

I don't have the same professional contacts you have.
- I didn't have them at one time either. I asked other investors who they used.

You go to a lot more meetings than I do.
- Because meetings are where I meet (hence the name meeting!) the people I need to know and get in touch with or find out about the professional contacts I should be using.

You go to a lot more seminars than I do.
- This business cannot be learned any other way.

I can't afford to go to as many seminars as you.
- You can't afford NOT to go to as many if not more seminars than me. The problem might be the type of seminars you are going to and speakers you are listening to. There are plenty of good quality local club meetings you can start with that cost about the same as a night out to dinner. You will get so much more out of the meeting than eating another restaurant cooked dinner. Leave home early and bring a sandwich.

You have been doing this a lot longer than I have.
- Actually, I haven't been doing this that long at all. Less than 5 years. However, at one time I was just getting started too and there are plenty of investors who have been working less time than me and are way ahead of where I am at.

The lending rules and laws have changed since you started.
- Yes, but I also have to conform to them just like you. As for lending, I find it is best to avoid institutional lending all together. It will only get you in trouble.

I don't have the money to invest.
- I still don't have any money to invest. At least, I try to never us my own money. My money is not for investing in real estate. There are plenty of people out there with money who don't know how to invest in anything. Help them out and put their money to work.

There aren't any good deals in my area.
- Look in a different area or stop looking for deals. I have never found a deal in my area either. I have created a few though by getting out and talking to people. This is a people business so if you don't like talking to people you might want to take a public speaking class at the local community college and/or do some volunteer work to get more comfortable speaking to people you don't know.

Other investors are getting all the deals before I can get to them.
- No, they are creating deals out of the opportunities you are driving by and passing up every day while you are looking for deals. Look for something different than what you are currently looking for.

I don't have the crew to rehab a house even if I did get a great deal.
- I didn't have a crew either on my first rehab. I asked other investors who they were using and if they knew any body that might be free.

I hear all kinds of excuses every week from investors who are facing challenges in their chosen markets. The only people who say this business is easy are the ones on late night TV. The problem with most struggling investors is that they treat the business like a hobby or only work it part time and expect to have the same success as their full time peers. While they might land a nice deal once in a while, more often than not, they continue to wander blindly throughout the day confused and frustrated. One way to quickly solve this is to figure out exactly what type of property you want to buy and only look at those properties. Diluting your vision with "anything that makes sense" is a fool's business model or reserved for the few with enough money that it gives them the freedom to sit around doing nothing waiting for something to excite them enough to get back in the game.

When I head out in the morning, I know exactly what it is that I am fishing for. I use the appropriate gear, the right lure, the right pole, test line, I go to the right type of water at the right time of day, I fish at the correct depths and I only keep the fish I am hunting for. Everything else goes back in the water without a second thought. Sometimes, I catch the right species, but it is not the right size, it is unhealthy, or it is too big so I let it go. Again, without a second thought.

If you are struggling with your business, I challenge you to go out fishing for big mouth bass this weekend and try to catch one. Take a picture and send it to me if you do! Think about all the necessary steps you had to take to catch that particular fish. The next weekend go out and fish for something different. Maybe a trout using a fly pole or deep sea species and again, think about all the different steps involved in catching this different fish. How are the processes similar and how are they different?

Now, compare catching your target fish to your real estate business. Are you taking the necessary steps, in the right order, doing the things you are supposed to do in order to land your next deal or are you just casting any old thing at any old pool of water hoping something will bite? Then, on the rare occasion you do hook something, reeling like hell to see what it is only to end up disappointed again?

Friday, April 30, 2010

What a fantastic goal!

Where are you going? What will you do once you arrive? Will you set your sights out past the horizon again and keep moving forward? Or, will you congratulate yourself, grab a bottle of your favorite bubbly, sit back and relish in your achievement?

This is a hypothetical question we frequently volley around our office in addition to the pile of cash Vs income stream question. What's the point in getting up everyday, heading out to the office, and working until dinner time if you don't have a goal insight? It might not be financial and that is fine. Any goal will do, but for this blog we are going to focus on financial goals.

I have a goal in sight which I posted about previously. I want to achieve $1,000 per day in net passive income. It's a long way off. Funny thing is I question what I will do when I achieve this dream. I do believe it is achievable no matter how far off it feels today. The reason I know it is achievable is because I have accomplished everything else I set my mind to do; service in the Navy, BS degree completed in 3 years, travelled all the way around the globe, move to California, bought my first house at 31 (which probably does not sound like a huge accomplishment to some, but I was only out of college and working 1 year at that point). So, $1,000 a day is just another goal and through consistent & persistent action it will be achieved.

I've only been in my current partnership for a few months, 8 to be exact. At first, we sat around and thought about buying a house. Then we actually bought one so we wondered if we could buy another. Suddenly, we were wholesaling a few a month. Now, it feels like normal operating procedure to come into the office and buy a property. I fully expect to buy one every day, but I can't imagine how it will feel to have a week go by without anything new on the board. I am always pushing the envelope and expecting a better month than the last. Why not, right? If I did it last month, why shouldn't I do it better the next? I'm always resetting our horizon.

I haven't netted $100,000 on a single deal yet though. But, I have come very close. I wrote this on my goals board over a year ago and am still working towards it. I believe once I do it, it will be much easier the 2nd time around. Kind of like the saying "The first million is the hardest to make." Once you achieve this accomplishment, it should be much easier to reproduce, as if you unlocked some secret code. The first deal is always the hardest right?

Upon achievement of my $100,000 deal goal, will I set my sights on a $150,000 deal? Of course! Eventually, I will expect to consistently do $100,000 every month. It is just the way I think and operate. Just like exercise, repetition is the key to (financial) fitness. I went from doing one deal, to a few deals, to consistently doing several deals every month. I have stepped up my game at every level. Makes me wonder if I will be able to break the addiction once I achieve my net passive income goal? I'd like to think so, but much better people have gone before me and haven't stopped yet. Maybe we need a 12-step program for RE investors?

Quick side note; I was at Best Buy picking up a new I-Phone today and saw a new Lamborghini in the parking lot. I'm just saying...

Wednesday, April 28, 2010

This Too Shall Pass...

If you don't know the story behind this saying you can read up on it at Wikipedia. I think this is a much better version HERE. For the impatient, I will give you a synopsis; A king challenged one of his servants to find him a ring upon which any happy person looked, it would make him sad and any sad person happy, hence the saying; This Too Shall Pass. It is great to have this saying handy when things are not going your way. Unfortunately, it does have the appropriate effect if read when you are happy. I had this saying written on a Post-It note and stuck to the bookshelf on my desk. There were times when it haunted my thoughts particularly, sometimes for weeks on end in the early stages of my investing. I used it as a mantra to defeat the negative thoughts hounding me. Fortunately, through hard work, persistent and consistent action, times have changed.

While walking my dogs tonight the saying popped back into my head. Not able to comprehend how things could ever be like they were in the early stages, I pondered this thought for the remainder of my walk. Not that I was ever much of a consumer, but all my debt, except real estate debt, is retired due to committed action to eliminate this drag on my financial freedom. Every time I had the opportunity, I plowed more cash into short term debt and down payments on new acquisitions, sacrificing a false sense of security for monthly cash flow. I would rather have a steady income stream than a pile of money any day. At least with an income stream, I have a budget to work with. I can build operating capital with a steady income stream to reinvest. An income stream gives me a yardstick to measure growth. The elimination of debt is one of the keys to financial freedom. (The formula for financial freedom is: Passive Income - Outgo = Something Left Over.) A pile of cash has a time limit. It has an expiration date. An income stream has a micro expiration date. If it gets screwed up one month, you get a do-over the next, and the next, and the next, and the next. One can just go on screwing up every 30 days for the rest of one's life and there will always be the next opportunity 29 days away.

We wholesaled 2 more properties today and found an investor for our Equity Participation Program. Now in escrow: 4 houses & 1 lot (all closing tomorrow), 2 new condos, 1 EPP house. Everything is spoken for so if you are interested please let us know and we will put you on the list.

Tomorrow is a new day and there are more opportunities to dig up. Going to work reminds me of being a kid on the beaches of New England. We would go clamming in the summer. It is easy to do. Grab a bucket and slowly walk down the beach at low tide and watch for water to spout out of the sand about 12". Once you see the squirt, you dig! The pressure from your weight causes the clams to squirt water out of their foot. Every step is a surprise. It was always a lot of fun digging and seeing how big of a clam we would find. Every step is another day in the office and I never know what kind of deal we will create when the phone rings and we are focused on loading up the bucket with keepers.

OK, that is a pretty corny anology, but being in the office can be as much fun if not more fun than a day at the beach. Although I can't work on my paddle ball skills, I don't get sunburned and there aren't any seagulls to crap on me.

Thursday, April 22, 2010

A Rolling Stone

gathers no moss so the saying goes. It is my new personal goal to put a house a week into escrow. So far so good! The end always looks so easy to achieve from the starting point. Just closed on another wholesale deal and locked up an REO that we will be dropping into our Equipty Partnership Program. I created a nice tag line for that program: We Find It, You Fund It, We Collect The Rents, Deduct Expenses and Pass The Cash Flow On To You. It's That Easy! I wonder if I can modify the Staples' "That was easy!" botton to use as a marketing piece?

After my last post I realize how much work I have ahead. I am also thinking "if things are this good now, it is going to be awesome finding properties once interest rates start to rise". A nice long drawn out down cycle will be really great too! It certainly would put an end to the objection "I am going to wait for the market to turn around". Once the idea of owning investment real estate puts a scowl on the faces of the general public, as I have heard happened in the past, things will get even easier. Of course, past performance doesn't necessarily predict future results. I have heard from the investors who worked through the last down cycle that they generally cannot believe the government intervention happening today.

We currently have one property being rehabbed, one almost ready for it's first tenant, five houses and one piece of land in escrow. Four of the houses are already assigned to wholesale buyers. We're keeping the land and, as I mentioned above, dropping the other house into the EPP.

I am working a deal that is kind of interesting and affords an opportunity to practice creative finance strategies. The seller has a condo worth $135,000. She wants $140,000 with $30,000 down. She will carry the $110,000 at 4.5%, 30 years. The condo is currently rented below market for $1,000. Market rent is about $1,400. She needs the $30K because her roof is leaking on her primary residence and she has a lot of water damage down the walls and under the mohagany floor. She is liquidating this asset to repair her primary residence. She tried to sell the property to the tenants, but she said they coundn't come up with the down payment.

I know what I want to do. If you have an idea, email it to me and we are going to give away a few Happy Hour calls to the most feasible and creative idea. Maybe we will post them and let you vote on them?

Spinning the Flywheel

If you haven't heard of Jim Collins of "Good To Great" fame then you don't really know what I am referring to. I will do my best to explain; Mr. Collins says that a company working towards greatness is like the spinning of a heavy flywheel. The first few turns are agonizing and difficult. Once momentum starts to build, it still takes effort to turn the fly wheel, but it spins faster and faster. Building a great company takes lots of work and sometimes it can be agonizing. My partner and I meet outside of the office, sometimes several times a week, and discuss our business model. While none of this is agonizing, it definitely is a lot of work just like those first few turns of the dormant flywheel. Even fun work is still work.

What we are doing in our business is working. It's just that sometimes, it is not always apparent what it is that we should be doing. Even in the short time we have been in business together, we have pondered different ideas on dozens of occasions. However, we have never taken our focus off of our main objective and the methods we use to achieve it.

I am always trying to understand the bigger picture of exactly what I am doing and working towards. I see many investors with much more success than me still doing deals and moving their goals out to bigger and further destinations. One has to ask; "How fast does the flywheel have to spin before one decides it is fast enough?" Yes, I am building a real estate investment company. One that I hope, will provide for me until the end. One that will continue to provide for those that come after me. The question I ask myself is "At what point is it enough?"

I have only known one investor who, from what it seems by posts on Facebook, has decided it is enough and started traveling extensively, continuing to do so. So much in fact, I eventually hid this person from my wall because I was growing tired of all the updates on different countries being visited.

I plan on growing my company. To what level I am not sure yet. I currently know in which direction, but not really sure where I'm going or will end up. As Mr. Collins would say, "I have the right people on the bus. We just don't know where the bus is going." I think it is better to set monthly passive income goals than # of door or house goals. I hear investors ask how many properties I own or the number of doors I control. Really? Do you actually care how many houses I own? What if I have 100 and they all lose money? Are you still interested? Probably not. I like the questions "How many houses can you take if they each produce $1 of real positive income every month? How many if they lose $1 every month?"

I currently have set my goal at $1,000 per day net income after taxes. However, I do not want this $1,000/day to be coming all from one property. I wouldn't want one mobile home park or apartment building to be the sole source of this income. Talk about all your chickens in one basket. A little off topic, but do you know what a tornado and a divorce in Texas have in common? Someone's losing a mobile home. I do like the idea of mobile home parks. Finding quality education is another story. Lots of info out there about doing Lonnie Deals, but I think my days of flipping mobile homes in other people's parks are over. Great cash flow, but I am tired of dealing with park managers.

If I want to produce $1,000/day from single family houses, I figure I will need 50 houses generating between $1,200~$1,500 per month in rent. This will produce $66,310 in gross monthly rent. Deduct 45% for expenses and I am left with $36,470 net. Deduct another 15% for taxes and I arrive at my $31,000 a month in after tax, net, passive income. This is why I really do not want to be in the single family house business. To much property producing to small an income. A geographic management headache. A mix of residential and commercial is the only conceivable way I believe I can achieve my goal. If 1/2 the income can be generated from an asset class such as mid to large sized mobile home parks and the rest from small apartment buildings and houses I think it will be a nice mix of investments to produce the sustainable income I seek.

I am on the right bus and it is moving. I'm just not sure where it is going to end up.

Wednesday, April 14, 2010

Strangle Hold

Today was one of those days. You know, the kind where everything seems to be circling the drain. We had a deal accepted on Friday, found a wholesale buyer Tuesday morning, and the seller backed out Tuesday afternoon. $10,500 wholesale fee down the drain. I have been negotiating with this seller's agent. This of course, is mistake number 1. NEVER waste your time dealing with someone who cannot make the decision. This seller's house is occupied by non-paying former owners. The current owners sold the house and carried back the financing. When the buyers stopped paying, the sellers foreclosed, took the house back, but never kicked out the old owners. They have been living there for over a year rent free.

So, instead of selling this problem property to me after we had already reached an agreement, they decided to list the house and see what they can get on the open market. "What in the World are they thinking?" is all I can ask myself. They have been avoiding dealing with this property for over a year and now expect a buyer to come along and take care of the problem for them AND pay close to retail? They listed the house for $10,000 more than I had it sold for. For some reason, they expect a buyer to come along with agent representation, get access to the property, make an offer, all the while the former owners who have been foreclosed on are still living in the property. I guess they also expect the new buyers to evict the former owners before they can move in?

I would imagine they are in for a shock because after the property doesn't sell, which it won't, my new offer will be $10,000 less. Real estate is a gamble and they decided to play their chips on the open market and see what transpires. If it works out for them, and I truly hope it does, that would just be a nice ending to a long, unnecessarily, drawn out story. If it doesn't work out for them and they come back to me, I will have to explain that by listing the house and not selling it, they have established what the house is not worth. It is worth somewhere south of that number and I still need to make a reasonable profit. Whether I pay $30K, $50K, or $300K for a property, I want to make $5K~$10K, minimum. Since they will have established a value that the house won't sell for retail, I have to buy it for much less so I can make my profit and still sell it to a wholesale buyer with enough equity in it to get my buyer interested while still allowing them to make a minimum 10% profit on their side of the deal.

Because I have consist leads coming into my office I simply let my buyer know that this deal is sidelined for the next few weeks and moved on to the next lead in my pile. I quickly learned that having a consistent flow of leads is what keeps me from strangling this one to death trying to force a deal when there is obviously not one to be made. The sellers are just not that motivated. Time and circumstances changes all situations. By consistently following up and working the fresh leads that come into my office every day I don't have to maintain a strangle hold on this non-deal hoping for a payday that is not going to happen. I can simply set it aside, work the hot leads looking for new opportunities and deals to create and revisit this lead after a few weeks. I like to refer to this as putting it on the back burner and letting it cook a little more. Just like a cake in the oven, when I stick a toothpick in it, if it comes out wet, I know it isn't done yet and I need to let it cook a while longer. Time and circumstances changes all situations.

Monday, April 12, 2010

The Snowball Affect

After every deal closes I tend to get a bit fidgety about dropping another property into escrow. Even now, I have 5 properties in escrow all with wholesale buyers lined up, I am jonesing for my next deal. I much prefer the long term holds to the quick flips especially this time of year! (Check the date and think Uncle Same.) When I lock up a long term hold property I know that that piece of real estate is going to continue to provide for me until the day I liquidate it. Closing a nice cash flowing rental is about the greatest feeling I get in this business. I like to see my monthly cash flow much more than I am interested in looking at the monthly wholesale income. It is the cash flow that will retire me and it gives me a very secure feeling rarely afforded in this business, but always sought after.

When I worked in construction sales, it took about 6~8 months after I had started to accumulate a nice monthly stream of commissions. It was usually a few weeks or even months after I sold a contract that the general contractor would even start construction on the project. Eventually, the project would need my product and the superintendent would place an order. As the job went along these orders would continue up until the end of the project. Payment came about 90 days after an order was placed. In the mean time I was still getting contracts signed and other jobs were starting. In the business, this was referred to as the Snowball Affect. Like pushing a snowball around a yard, it slowly starts to grow until it becomes monstrous.

I still try to replicate this process in my real estate business. In this world, I refer to it as the pipeline. On one end, deals are falling into the pipeline through a funnel, in the pipeline are my deals cooking in escrow, and out the back are wholesale checks, deeds, and rehab-for-retail projects. As long as the pipeline stays full I am a happy camper.

Where I get into problems is the week after a stellar week and the let down that comes with it when nothing seems to be popping. That is when the Jonesing starts. Where is the next deal going to come from? What will it be like? What kind of house? On and on. Of course, the phone keeps ringing and the next deal comes along. I typically don't even see the houses I am buying and selling. On average, I think I have about 10 leads a day to follow up on and 2 or 3 more new ones come in. I find that I still have a lot of time on my hands during the day. I would like to get the phone ringing 10 times a day and have 20-30 leads to follow up on and I am sure that day will come. I want to fill that pipeline up like Brim.

I like the saying "Do what you have to for as long as you need to so you can do what you want for as long as you like." I am getting up and going to work every day so why not make the most of it? If I bought two houses last week, why shouldn't I be able to buy at least two more this week?

Marketing is the key to my business. It is a constant process of coming up with marketing ideas and there is not much real help out there in the world for us real estate investors except for Dan Kennedy. We ran numbers at my office and found that we have closed 4 to 1 more seller lead deals than REOs. That probably is quite surprising to most investors and maybe slightly unbelievable in this market. I have never been much of a herding animal, always kind of doing my own thing, and when the pack all ran after trustee sales and REOs it just kind of made sense to me to go where nobody else was going. If I am able to fill my pipeline at my current level in this market, I am very excited to see the volume of leads when the market shifts again and it will be in our favor.

Sunday, April 4, 2010

Working On Vs Working In the Business

So I spent ALL weekend doing my books. 12+ hours on Saturday and more than 10 on Sunday. I had a lot to catch up, let's just leave it at that. I am now ready for the CPA and the tax man though so that is a good thing if you're into that kind of stuff. I had set a goal to have my corp books done by Sunday night and I finished at about 11PM. At least up through the date the tax man is concerned with. I am positive I will be more proactive in entering my transactions. Even a few weeks leaves me puzzled why I withdrew or deposited thousands of dollars??..

In the beginning I had hired a bookkeeper off of Craigs List and that was mistake #1. I should have asked around at one of the many RE investor meetings I used to attend. Which, by the way, is what I eventually did and I couldn't be happier. My books were so screwed up. Of course it is my own fault for not understanding what was being entered and how it was being assigned. I was implementing the "work on my business, not in my business" philosophy and it cost me many thousands of dollars and just as much wasted time. I understaning very well how to do my books now. I even made my own reference book with screen shots for tricky transactions. I will have better luck turning it over to someone else next time because I will be able to read the reports and actually know what I am looking at/for. Each mortage payment has potentially three parts; principal paydown, interest, and impounds and they each get assigned to their own special account and class. I learned this after taking a few Quickbooks classes and spending hours with my new wondeful bookkeeper.

I do have some interesting updates! We put 4 houses and a parcel of land into escrow last week for $300,000. We wholesaled the package for $315,000, but kept the parcel of land free & clear. If only we could do that with a remainder house! However, this opens up a great 1031 exchange strategy which I will talk about at another time.

On Friday we received a call from a former customer (repeat business!!). He sold me a condo in Rancho Cucamonga recently which I paid $210,000 for and wholesaled for $230,000. We hit a few small speed bumps in that escrow, but I did what I said I was going to do and closed when I said I would. This particular condo he wanted to sell me now had a much better view, he claimed. "You can see the whole city of Ontario" he told me. Well, I'm not much interested in a view. I told him I bet the view from an airplane is much better. If he kept pushing it as if it were worth something to me, I might have told him I am afraid of heights and that view has a negative value to me. What I realize is that it is my job to liquidate real estate fast and at a fair price for not just the seller, but the buyer as well. I do this by writing simple, contingency free contracts, not peforming any inspections, using cash to close, and funding quickly.

A view might be wondeful to a home owner, but it really means nothing to me. I have always thought that if you can see everybody, can't everybody see you too? I'm buying a house, not a view. I can't wholesale a view. He said the least he would take would be $240,000 for this special view condo. The other one of his I wholesaled is on the market for $299,000. He told me he has a tenant in the one he wants to sell me and the lease runs through the end of June. I told him I would get $210,000 cash in his hands in 2 weeks, I'd put down $10,000 earnest money and take it with his tenant in place. I told him I needed to buy this property fast because the guy selling the other one has no sentimental connection to the property he has on the market. It is inventory to him and we both know he has a lower number he can sell it for. If we wait until the end of June when the tenant moves out, my profit margin could get squeezed by the investor if he lowers his price. Before leaving the office on Friday, I asked my partner to email him a written offer under the terms 'we' discussed. I firmly believe in getting an offer into the seller's hands. Even if they tell me over the phone they will never sell the property to me for the price I mention I still want to shoot them over something hard in writing to look at and ponder. This was a hot lead and we needed to act fast.

He countered via email at $220,000. Just like that he knocked $20,000 cash off his bottom line sales price. He also mentioned in the email that he had room to 'wiggle'. I asked my parter to send him back an email clarifying that our offer was $210,000 cash in his hands in two weeks. He got back to us the next day and said he'd take it. We already have a buyer lined up and I think we can get him at $230,000. That is a nice wholesale. And why not? The property has this amazing view!

Friday, March 26, 2010

A New Kind of Thing & My First Burn Out

So far this year I believe I have developed my first unique plan to achieve long term wealth and financial freedom. I am now buying rental properties in SoCal, but the best part is I am getting paid to buy and keep them! I am very excited about this new strategy that I developed. I heard a local wholesaler (who I am now in business with!) talk about not being able to profit in the future from the properties he sells. Once the house is sold, it is just another house on a street not doing anything for you. I took what he said very seriously and put a lot of thought into it. Then I didn't actually meet the guy, but Chris Carlson pointed out a fellow at a Jack Miller seminar up in Reno. He told me what he was doing and it stuck with me as well. Eventually, I combined the two and voila! I have done it twice already!

As for the burn out; I received a call about a property in Rialto that had caught on fire. The garage was in a bad way and it looks like the trusses are toast. I went out to see the property (something I don't do very often any more). The seller says there is about $19,000 in liens and she wants $20K. I don't think $20K is the right number even though it is worth $135,000. A challenge with this particular property is that just next door starts a row of 4-plexes. You can't solve a location problem. I called up the wholesaler and asked me what I am into it for. I told him worst case scenario is $40,000, but I am going to try to shave it down a bit. I'd like to pay $10,000 + the liens. I was comping it out while on the phone with him and told him what I thought the value is. He said with that kind of equity he could sell it.

Sunday, January 31, 2010

Public Speaking

I spoke with Shawn Watkins, Bill Tan, and Kaaren Hall at a creative financing seminar yesterday. We had about 100 people turn out and there wasn't an empty seat in the room. Public speaking is a very difficult skill to master. I used to DJ before and during my college years and I learned very quickly that the music I played was directly related to the mood I was in or the energy level I was feeling and in turn it really affected the crowd.

During my first lecture at the seminar, I was extremely tired due to my excitement the night before and the relentless concern that I would either have too much material to cover and run out of time or not enough and not be able to fill my time slot. I should know better by now since I can talk for hours about real estate so any amount of time is not really enough. However, standing in front of a room and wanting to provide quality information takes a lot of effort. Even doing a dry run in my office, timing my prepared lecture didn't help; Trains of thought get derailed, the tracks get switched, questions arise from the audience and ideas suddenly pop into my head.

My first presentation covered some basic skill sets I use in my business every day and the expenses associated with owning rental property. I am very passionate about property management. It is the path I have chosen to financial independence. During my second lecture, which was scheduled to occur after lunch, I decided to speak freely about a few deals I have done and some strategies I like to use. During lunch Bill Tan pointed out that I wasn't my normal self during my first lecture and that I might want to snap out of it and be a little more animated. He said before he speaks, he always says to himself "It's showtime." He reminded me that people are paying money to be there and although it is for the information, it is important to provide some entertainment as well. I knew exactly what he was talking about and I realized what affect my energy level had on the audience.

I did not chose to be a public speaker. It just kind of happened over time. When I was a kid I worked at Kmart and part of my job was doing the Blue Light Special announcements live from the front desk. I guess I did them well because it wasn't long before a few of the other employees asked me to do theirs too. After high school I joined the Navy and being stationed on a ship, periodically I was required to make announcements over the 1-MC which is the ship wide intercom. You don't want to mess up on that because it is not just every crew member on board listening in, the Captain is hearing it too! After the Navy I worked as a DJ doing weddings. Part of my job involved introducing the wedding party and making other announcements during the event. I never had any issues regarding speaking in front of crowds so it was very easy for me to adapt to these situations.

As a real estate investor and (I guess?) public speaker, my first goal every day is to find another house to buy. If, during the course of the day I am asked to speak, I will typically accept. I have only refused on two occasions that I can remember and that was because I wasn't very found of the speaking situations I was asked to be a part of.

I will continue to study and implement creative real estate investing strategies. I currently don't really have any plans on being the next public speaker on the topic. Mostly because, as I mentioned earlier, I am very passionate about what I do and my aversion for certain aspects of this business comes out when I open my mouth. I am also aware that I can be quite abrasive at times. It is not that I think I am right and others are wrong. It is because what I do works for me. If I am asked to speak, I am going to talk about what I do with the same passion I have for what it is that I do. Hopefully, my lecture will be received well at least for the information I provide.

When it comes to studying, as the saying goes, I have enough on my plate already. I must continue learning investing strategies from those more successful than myself. I have stacks of books that I haven't even cracked. My Amazon wish list has 58 books on it. As much as I want to be a better public speaker, I think it is much more important for my business to continue studying the masters and the strategies they use. I'll do my best the next time I am in front of a room, which by the way is Feb 16th at NSDREI in Oceanside (shameless plug). If I come off as too boring or abrasive, I apologize in advance. Remember, you are there for the information and I am not a professional speaker.

Friday, January 1, 2010

Good bye 2009, Hello 2010

If I remember 2009 as anything it will most likely be as a year of challenges and learning. As I look toward the future I can’t help but reflect on the past. 2009 was the year I had my most expensive repair bill on a rental home and understood the meaning of repair expenses; $15,000 to legally hook a property to a sewer line and clean up the spilled sewage from the over flowing and failed septic system. It was the first time I lost money on a deal; approximately $10,000, but I was so happy to get it out of my life and off my books. It was a record breaker for my longest hold; 12 months to finally get a rehab sold to a buyer and when the dust settled I ended up with about $2,500 profit. I also learned why I should buy property within a reasonable driving distance of my office; the property I held for 12 months was out in Palm Springs. It was the year I lost two people I looked up to and relied on for knowledge; Chris Carlson was a local investor and even though we had only met less than a year ago, we spoke almost every day. He was my local go to guy for creative financing and difficult transactioneering. The creative investing community lost a great asset with his untimely passing. Jack Miller was the smartest person I had ever personally met and one of the most knowledgeable people in the industry. My sympathy goes out to all those who never had the honor to sit in one of his seminars and be overwhelmed or attend one of his box wine parties. I learned that Thomas Stanley and William Danko knew what they were writing about after I attended one of those millionaire’s club events.

2009 was full of challenges, but with these come experience and with experience comes knowledge. In 2009 I closed on some of my most creative deals thus far. Always attempting to use what I learn, I purchased several properties with seller financing, one of which has a very favorable interest rate somewhere south of 1%. I also signed my first note with both substitution of collateral and first right of refusal clauses.

As I look forward to 2010 I am grateful for the friendships and connections I have made in this business. It is these that carry me through the difficult times and provide me with the support and encouragement to open another escrow. I am excited about the never ending river of opportunity this business delivers to me each and every day. I wake up energized to answer the phone and check my email for seller leads. I am inspired by the vast creativity I can express using techniques and strategies to acquire, hold and sell real estate. I never thought I could have so much fun with numbers.

2010 looks to be very promising. I doubled my portfolio of rentals in 2009 and hope to continue to grow my rental business even more in 2010. I will continue to avoid the crowds and instead keep buying property from people sellers. While the other investors rush to the court house steps and chase down the REO brokers, I will be quietly perfecting my craft and ensuring that my steady stream of profits will not dry up as the market shifts. I will continue to focus on education and seek out the best speakers on topics I have yet to master. Above all, I will spend time with my wife, pets, and friends. I look forward to 2010, but I’m enjoying today very much.