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Wednesday, June 20, 2012

Swing Batter, Batter Swing!

As of July 29th, 2012 I will have been purchasing properties for 10 years. Although my first acquisition was a personal residence (which I would highly recommend new investors not do!), I knew while buying it, eventually it would become a rental property for me. I still own that property and it has produced excellent cash flow ever since I moved out of it.

Even though I was buying mainly rental houses over the next few years, I didn't start investing full time until 28 August 2006 when I purchased my first property to rehab and flip from a wholesaler. Since that time, in the last (almost) six years, the markets have gone crazy. I got started doing rehabs and flips when the market was crumbling all around. Before I jumped in, I was inspired by many, many investors. Some were doing a lot of deals. Some were doing BIG deals. Some were making huge piles of cash and living extravagant lifestyles with their new found wealth. I was in awe. I was intimidated. I didn't let it stop me though. My first deal produced approximately $26,000 in profits in 6 weeks. I was hooked. I wanted more. I kept buying and flipping properties. The odd thing was that most of the investors around me started playing it much safer while I was getting more aggressive. It actually became very easy for me to get wholesale deals to rehab. I remember my mantra back then was, "Buy lower and sell below ARV fast!"

It culminated with me buying a 4,126 Sq/ft property on a hill top for just over $700,000. I was going to fix and flip it for a huge profit. I'd show em all! Well, things didn't work out quite like I thought. I ended up holding that property for almost 10 months and the market was getting worse every day. When I finally sold the property (for a profit!), the majority of the investors that used to show up at our networking lunch had disappeared. There was still a hardcore small group, but most weren't buying anything. I think we spent more time talking about the books we were reading than the deals we were doing.

Over those couple of years, I had made quite a few mistakes. Only one cost me any significant amount of money, but it didn't set me back much. Eventually, I decided to rethink my investing strategy and focus. My new goal was to come into the office and hit just a single or a double. If I could put a few good houses into escrow every month, month after month, and do it in a way that wasn't dependent on what the market was doing and so I wasn't putting myself into a highly leveraged, financially risky situation, I knew I could develop a long term business model that would provide for me as long as I wanted to keep showing up and pressing the buttons.

10 years later and I'm still here. I see many new, younger investors hitting their triples, and home runs, constantly stepping it up to go bigger and better on their deals. I imagine just like when the market shifted last time, many of them will quietly disappear as their over head eats up their cash flow when they can't figure out where the cheese has been moved to. A new quote I got from Mike Cantu that I keep written on my yellow pad states, "Take care of today's cash flow needs and build reserves." I think that is a really good quote. Mike has the best business acumen of anyone I have ever personally met.

I hit the gym 4-5 times a week. I sleep till 10AM. I work about 5 hours a day, 4 days a week. I have perfected my buying systems. Singles and doubles is all I'm swinging for. A nice triple every once in a while is great and I've had a few home runs over the years. Still waiting on that grand slam, but the destination isn't as sweet as the journey... so I'm told.

This week I wholesaled a house and split that fee with a friend I met on Facebook, but I have never met him in person. I purchased 2 houses next door to each other for 58% of ARV. They both have long term tenants and I plan on holding the properties as rentals. I got an offer for a rehab / flip I just completed and I haven't even put it on the market yet. I countered their offer and pushed the buyer up another $10K which they accepted. I should net right around $80K on that property. In my world that is a good triple base hit. I purchased another house in Apple Valley that I intend to do a light rehab on and sell As-Is for 85-90% of ARV which should net around $20K. And finally, I leased up one of my rentals to a new tenant paying me a few hundred dollars more than the last tenant.

When you get up to bat, what are you swinging for and how long is your strategy going to keep you in the game?

I'm taking Friday-Monday off and going out to see the sequoias. A few interesting facts about the sequoias; they are the fastest growing tree on earth, their roots only go down about 3' deep, and their wood is very brittle. It is the combination of the brittle wood, shallow root structure, and their top heaviness that eventually causes them to be blown over by wind. You can learn a lot about business from a 3,000 year old tree! I've always wanted to see them and haven't made the time until now, and quite frankly,  I'm more excited about that trip and the time away from my office than any of the deals I've done this week.

What does your "root structure" look like? Are you top heavy with flip deals, but have shallow cash flow?