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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.

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