A young man's fancy turns to spring …

Posted on May 14, 2009 by Adrian

Just as a young man’s fancy turns to you-know-what when spring is in the air, this not-so-young investor’s fancy turns to real-estate as soon as he arrives back in the home country.

But, I am 5 years out of touch as to values; not to mention, I have grown accustomed to values in ‘per square feet’ and Australia is all metric: ‘per square meter’ rules the day …

… what to do, what to do?

Take a look at the scanned image; it’s really my hand-writing; I submit this near-illegible, piece of potential embarrassment for two reasons:

a) Bad handwriting is a sign of intelligence – ever looked at an old-fashioned, handwritten doctor’s prescription? And,

b) It proves that I really do this stuff that I’m telling you about. It works!

You see, the funny squiggles on the scanned image told me all that I needed to know about commercial real-estate values in the Melbourne inner-city suburb of South Melbourne [AJC: unlike many major US cities, the ‘south side’ of Melbourne is not dangerous … it’s ‘chic’] in less than half an hour, here’s how:

Assessing Rental Values

I visited an on-line commercial real-estate site [AJC: this won’t work for residential; but, it will work for larger multifamily, as well as offices, warehouses, etc.]; in the US I use loopnet.com and in Australia I use sites like realestate.com.au

I then scrolled through listings of my target property types (in this case, offices) in the area of my choice (in this case, South Melbourne) and listed Properties for Rent – two columns:

Column A: size of building (i.e. rentable area);

Column B: annual rent

I then entered the same figures into a spreadsheet and graphed the two columns as a line chart; here’s the actual one that I produced for South Melbourne:

This simple graph shows the size of the properties that I was looking at along the bottom (Column A along the X-axis) and the annual rent being offered up the side (Column B up the Y-axis) … and, it tells me an awful lot:

– The smaller the property, the larger the (relative) rent

– The average rent is $249 and the median is $306 (both easy to calculate using the built-in tools in the spreadsheet)

But, you can really see what is happening on a graph like this – something that you would probably miss entirely if you were just scrolling through listings – there seems to be two separate rental markets: one around the $200 per square meter price point, and another one around $300 psm.

Now, if I was really looking to rent (I’m not; I’m a buyer), and if I was looking to rent a space around the 500 square meter size range, I’d be asking to inspect the three properties around the $200 per square meter price point first, then I’d start working my way up. I might also look at a couple around $300 to see if there is a quality difference … I’m betting ‘no’.

Assessing Purchase Values

Using the same on-line commercial real-estate site, I then scrolled through the ‘for sale’ listings of my target property type and again listed Properties for Sale as two columns:

Column A: size of building (i.e. rentable area);

Column B: sale price

As before. I entered the same figures into a spreadsheet and graphed the two columns as a line chart (again, for South Melbourne):

This graph – similar to the first – shows the size of the properties that I was looking at along the bottom (Column A along the X-axis) and the sale price being asked up the side (Column B up the Y-axis) … even though there’s usually fewer ‘for sale’ than ‘for rent’ listings, it tells me even more:

– The smaller the property, the larger the (relative) sale price

– The average sale price being asked is $4,600 per square meter (sounds like a lot – and, it is … prices are high in Melbourne – but you can just divide by about 11 to see the price per square foot) easy to calculate using the built-in tools in the spreadsheet).

More importantly, at least for the smaller properties on offer, there are two distinct price points: $6,000 psm and $3k – $4k psm … now, you can divide the list into Class A office space and Class B/C if you have enough listings, because that will probably explain such a large difference. And, there’s nothing like a quick ‘drive by’ or two to confirm.

Since I’m looking for 400 square meters, for a co-working project that I am looking at, this is telling me pretty quickly that if i can find a decent office in that size range for $1+ million, I might be onto a bargain … and, that’s something that I just love 🙂

Oh, by comparing the average rents to the average sale price (and confirming with a few listings where both a rental price and sale price are offered – which happens more often than you may think), I get a quick indication of current cap. rates: around 6.2% in Melbourne … I must have rocks in my head even thinking about investing here!

At the very least, by doing this exercise, I have very quickly and easily laid the groundwork for a sensible discussion with a local Realtor …

BTW: If the properties in your area vary by class (eg Class A, B, C) and by types of leases offered (eg Triple Net for some, but not for others) then you may want to graph these separately … but, start on one graph and see what that shows you.

Tax implications of converting your home to a rental …

Posted on March 3, 2009 by Adrian

This is your last chance to take part in a foolproof money-making scheme … even if you have NEVER bet on a horse in your life, I personally GUARANTEE that this System (previously known as ‘Lay Formula’) WILL work for you! If you do want to take part in this once in a lifetime opportunity, read yesterday’s post here and register your interest NOW.

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deathtaxes

Despite the length of this title, today’s post will be really short … because I have NOTHING to add on the subject of taxes. They are something to be paid – or not paid – depending on the advice of a QUALIFIED tax practitioner (accountant and/or attorney) in the area that you are interested.

Personally, I have only a slight hiccup in signing tax checks for over $1 Million (as I have for the last 2 tax years in a row) because it means that I have made a TON more money 🙂

… and, I rely totally on good advice; but, I pay for conservative, specialist opinion where necessary.

However, I have noticed that I number of my readers (and contributors) have recently converted their own residences into rentals, so I thought that I should perform a Reader Service by pointing you directly towards the excellent Tax Tips Blog so that you can read some excellent advice, straight from the “horse’s mouth”:

http://glgcpa.com/blog/2009/02/18/convert-personal-residence-to-rental/

Disclaimer: I have NO IDEA whether this is good, bad or indifferent advice … that’s what your accountant is for! 🙂

But, I would like your opinion …

Good deal or bad deal?

Posted on February 3, 2009 by Adrian

No, this is NOT another ‘Howie Mandel-style’ game show … I’m done with that series (aside from a couple of wrap-up posts, still to come)!

But, this will be my last reader Poll for a while, so I want you to sit down for 3 minutes and make a commercial decision with imperfect information:

Time for a fun ‘hypothetical’ … I’m not really asking you to invest with me [AJC: I want you to learn to invest with somebody far more capable: yourself!] …

I would like you, and a number of other people, to join me in a real estate project [remember: this is hypothetical].

It will be very low risk, because it’s a very well-established commercial strip-mall in a great area, pretty much fully rented with lots of good tenants with long leases left to run and for the last 10 years has produced a reasonable – perhaps not stellar, but certainly highly respectable – profit with very low maintenance costs, tenant turnover, etc., etc.

No catches, here, really … it will be a general partnership, I will be the managing partner and you can join the group of passive investors already committed.

So, let’s look at the deal a little:

Your share of the investment will cost $100,000 and for that you get 10% of the $1,000,000 project (incl. financing/closing costs) … it’s a very inexpensive strip mall 😉

We expect reasonable capital appreciation over the life of the project (up to 10 years, although you can sell out anytime before then, and we will guarantee both a buyer and then-current market price for your share).

The property will return about $9,000 a year (net operating income per 10% share), but we think it’s best to keep aside some as a contingency against vacancies, maintenance, etc., etc.)

So, we will guarantee you (secured by the project itself) $7,500 income each year for at least the next 10 years indexed to 7.5% of the current value of the building (but, NO LESS than the $7,500 p.a. guarantee) v the $3,000 or 3% that a bank will currently give you, and which does not grow. Of course, you may have others ideas in mind for the money, but I hope you will invest with us … after all, here, your income is guaranteed!

In summary: an ultra-low-risk ‘bricks and mortar’ investment returning a MINIMUM 7.5% p.a. on your original investment (increasing in line with property value increase) … you will get your money back, just from the guaranteed distributions that the project will pay you, over 13 years and you STILL get 10% of any appreciation in the building!

Deal or no deal?

The $7million Real-Estate Rule

Posted on June 11, 2008 by Adrian

Yesterday’s post, The $7million Real-Estate Question(s), was aimed at the first-time investor, perhaps stuck on making their first real-estate investment (not home) purchase decision by the – perhaps too many – factors that they would need to consider.

In essence, what I said is: in a commodity market, buy the commodity at commodity prices … and wait!

Wait for what?

Ideally, forever … but, at least until the values have improved.

But, what kind of real-estate are commodities?

Houses and apartments in most areas are commodities; small multi-units (duplex / triplex / quadraplex) can be, too. Anywhere where there are lots of them near each other …

… preferably lots for sale, and fewer vacant [AJC: Too many vacancies can show an area that’s declining in population and/or jobs (with job growth being, by far, the most important of the two) … we don’t want that!].

Also, for residential property (that you don’t intend to live in) you really need to go for an area that will/can appreciate as it can be very difficult – if not impossible – to get them to cashflow-positive on a reasonable deposit (say, 10% – $20%).

Even so, my first two $7million Questions showed you the right type of market to buy in … which is, right now!

But, when evaluating more complex real-estate transactions, such as: commercial apartments (6 and above); offices and factories of all sizes … surely the The $7million Real-Estate Questions are not enough?

And, surely you are right …

These types of properties are sold as ‘businesses’ in that they have:

a. Income (or rent)

b. Expenses (or outgoings)

c. Taxes (unfortunately)

d. Profit/Loss (or Net Operating Income)

I will run you through how to analyse some of these types of property in future posts; for now, I want to tell you one way to assess these types of Investors’ Real-Estate that is NOT as important as you may be lead to believe, and another way that is MUCH MORE IMPORTANT.

Because commercial property runs at a profit (or loss) and has an Income Statement, people tend to buy (and sell) these types of rel-estate on the basis of their financial statements alone …

… and, not on the sale of comparable buildings around!

This is critical to understand – as it is totally opposite for the types of residential real-estate that most of us are used to.

The second thing to realize is that these buildings sell on a variety of bases, but usually the ‘expert’ real-estate acquirer will assess the Net Operating Income during Due Diligence and buy for a multiple of that … there is usually a multiplier [AJC: that the real-estate books that you read will all say is around 10 … but, these days in many of the hotter markets in the US and overseas, it will be as high as 12 to 16 – or even more when things get crazy].

This is called a Capitalization Rate or simply Cap. Rate.

Yippee!

This is just another way of saying that when you buy the building, it will return 10% of the Purchase Price (for a cap. rate of 10) by way of Net Operating Income (which should improve as you increase rents).

A larger Cap. Rate when you talk “times” (or smaller when you express it as a %) is BAD for purchasing (but, great for selling if you can increase the rents a lot!); here’s why:

A 12 times Cap. Rate means that a $1,000,000 property will only return (NOI or Profit) a little over 8%

A 16 times Cap. Rate means that a $1,000,000 property will only return (NOI or Profit) a little over 6%

So, a serious investor will pull out all the numbers, take a look at the Cap. Rate and make a decision whether to buy (obviously, there will be a lot of other factors … this will drive the financial decision).

How will they typically make that decision?

Well, they’ll compare the % return to what the cost of funds are … if they can make enough to cover the mortgage … then they’re in. So, with a Cap. Rate of 8% and Mortgage Interest rates at, say, 7%, it’s slim … but, they’re in front!

Cap. Rates are really useful, when you can a property for, say, $1,000,000 – add $50,000 of renovations that allow you to increase rents by 10% … all of a sudden, your property is now worth $1,100,000 – a 100% Return on your $50k rehab. investment!

But the Cap. Rate alone doesn’t give you the true picture for the original purchase decision … there’s a MUCH better way to look at the financial decision … first, here’s why:

A. Your investment in real-estate is only the deposit – typically 25% (plus Closing Costs) on commercial

B. The Bank’s investment in real-estate is the mortgage – typically 75%

But, you get the ‘return’ or the Net Operating Income on the entire building …

Because of this wonderful benefit of buy-and-hold, income-producing real-estate, the ‘right’way to value an investment is by it’s return on what YOU put in: it’s called your Cash-on-Cash Return.

So if you put in 25% deposit on a $1,000,000 building with a Cap. Rate that’s returning 1% over the mortgage rate, then you are getting:

1. 8% return for the 25% that you put in, plus

2. A ‘free’ 1% for each matching 25% that the Bank puts in – since they put in the other 75% that’s another 3% effective return.

All of a sudden that ‘small’ 8% return that seems only a little above the bank’s interest rate of 7% swells into a real 11% Return on your money [AJC: most investors will look for a return on their money (in real-estate) in the 10% – 20% range; this requirement will increase as Mortgage Interest Rates increase] … and, we haven’t even counted on any appreciation, yet (!):

i) As Rents increase, so does your return because YOU don’t have to put in any more money … inflation does all the work for you!

Example: if interest rates remain the same (and, they will because you DID fix them, right?), but the rents go up a mere 4% per year over costs (and, they will because you DID put a ratchet clause in the lease, right?), in just three years the building’s 8% return will swell to 9% …

… and your cash-on-cash return will jump to 9% + (3 x 2%) = 15% – try getting thatin CD’s, Bonds or Stock Funds!

ii) As the building appreciates, so does your future return, even though you can’t cash on this right now (unless you refinance, of course).

Example: If cap rates don’t change (that, unfortunately, is up to the market), the 4% increase in rents will ALSO increase the value of the property by 4%. Which sounds great, until you realize that you only put up 25% of that …

… so, YOUR return increases by 16% – try doing that with Stocks!

Now, how does a 30% return (half now, half when you sell) sound to you? And, what happens if you hold for a little longer?

You do the math!

Too scared to buy? That's OK … just jump in, anyway!

Posted on May 9, 2008 by Adrian

With anything that has a big upside, there is usually the fear of the downside, but I say:

No pain, no gain!

Think back (or forward) to your first real-estate acquisition – it probably was (will be) your own home.

Fear? Sure … in a ‘down market’ there are perhaps well-founded fears that prices could go even lower.

Does this mean that you shouldn’t buy a house? That’s up to you.

But, here’s what I think:

First, you should always seek out and listen to expert advice … that is advice that comes from:

(a) Somebody who understands the game – that would be a Realtor, and

(b) Somebody who has made a lot of money in real-estate – that would be me 😉

Follow what your Realtor says, but don’t be paralysed with fear …

If you find THE house that you like AND you can afford the payments, go ahead and BUY.

Just be sure to lock in a loooong (say, 35 year) mortgage at current rates (still a very low 6%).

Time – and low current interest rates (which is why you MUST lock in for as long as you can) – will ‘cure’ any mistakes that you do make … after all, mistakes can happen despite following all of the good advice that others will give you.

But, real-estate is (perhaps, surprisingly, to new investors) very forgiving if you have a long-term view …

And, I am a firm believer that owning your own home is the START of your path to wealth.

Even so, it’s OK to feel at least a little FEAR and TREPIDATION when you submit that offer …

… so that you will feel at least a little better, let me tell you about the real-estate transaction that scared me the most:

About 5 years ago, I decided to move offices. Even though I had already made some smaller real-estate investments, I had always rented my office space.

My accountant suggested that for this move, I should BUY my own office building!

Now, my business was just beginning to make (still very, very little) money after years and years of losses, so you can understand my first words to my accountant: “Say what, Fool?” 😉

On top of that, the building that we had targeted was selling at auction … and, there were a ton of people at the on-site auction, all looking very intimidating and all looking like they wanted to – and, could afford to – buy … holy sh*t … scary stuff!

Now, I don’t recommend that anybody (bar an expert) buy at auction – just too many unknowns to deal with – but, I somehow ended up with this piece of real-estate for more than $1.25 million …

… and, it still needed another $500,000 in renovations and office fit-out before I could use it!

Long-story-short:

We bought the building with 25% down and we leased all of the renovations and fit-out.

I sweated every payment for the next couple of years, until the cash-flow in the business caught up with (and, thankfully, eventually overtook) the mortgage and lease payments.

Just a few short years later, I sold that business, then the building … I made a cool million dollars on the sale of the building alone; that’s $1 million that I would NOT have had if I hadn’t made the leap to buy it.

In parallel, I kept building my real-estate portfolio, using the ‘spare cash’ that my other businesses produced … most of which I still own (the real-estate, not the businesses … I usually don’t advocate buy-to-sell for real-estate … the office building was an exception).

But, that office building was still my scariest – yet, one of my best – Real Estate transactions, to date.

So, if you are thinking of buying some real-estate (be it your own home, own office, or a rental) and can afford the payments, I say:

Go ahead and jump right in … after the inital shock, the water’s fine 🙂

The 6% Realtor Solution

Posted on May 3, 2008 by Adrian

Last days for ‘pre-applications’ to become one of my 7 millionaires … In Training! Click here to find out more …

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To get a Realtor or not to get a Realtor, that is the 6% question …

Joshua asked a question about a recent post:

I’m planning on buying a condo soon … fixing it up a bit and renting it out … but how would someone “educate themselves daily on the market”? I keep an eye on the 30 FMR and am impressed with rates right now but I’m wondering if there’s more to this education.

If you’ve been following this blog, you’ll probably also be thinking that now might be a great time to be buying some real-estate: a house, a rental house/condo, duplex/triplex/quadraplex, retail/commercial, office or industrial … the choices abound!

No matter what you are thinking of buying, once you have done some of your own homework and narrowed down (a) the type of real-estate you want, (b) the price range that you are interested in, and (c) the area/s that you are looking at …

… then find a Realtor who will send you ‘comps’ (i.e. comparable sales) on similar sales in the area from the Multiple Listing Service (MLS).

Also, ask the Realtor for information that will help you find how the market has changed over the past couple of years … do the same with rental ‘comps’.

Also, physically look at a number of similar properties in the area/s that you are interested in before choosing one.

Of course, you can get some (most) of this information from public (many free) databases … just Google ‘MLS’ for listings of properties of the type that you are interested in, and sites like rent.com for rental rates on apartments and houses. Sites like realtytrac and loopnet are great for commercial.

But, there are some big advantages of using a Realtor:

1. Qualification – these guys are trained (more so than a ‘standard’ real-estate agent … the ‘Realtor’ designation actually means something!) and if they have worked in the market for a while, they will know what you are looking for before you do.

2. The MLS listings that they can get you are far more detailed than the publicly available ones.

3. If they own and invest in the same types of properties in the same areas that you are interested in, they can be a great resource (AJC: this should be the first question that you ask … only deal with an Investor/Realtor who already invests in the same type of real-estate that you want to be investing in, and in the same or similar area/s).

4. They will represent you in the purchase and the other guy (i.e. the one selling the property) pays their fee – they typically split commissions with the selling agent.

So, the seller’s 6% commission pays you for a ‘free’ buyer’s agent … just choose the right one … OK?

The most dangerous idea in retirement planning that I have ever read!

Posted on May 2, 2008 by Adrian

Double Dose of 7million7years! Please check out my FIRST EVER Guest Post … it’s at BripBlap, a blog that should be on your DAILY READING list: http://www.bripblap.com/2008/guest-post-education-a-curse-or-a-cushion/

In a few weeks, I was planning an ‘expose’ of a book that I read , but just came across a related post by an innovative thinker who calls himself Gryffindor (presumably, named after one of the Hogwarts Houses in Harry Potter) so I can’t resist but to weigh in now …

And, I’m going in boots and all!

First, here is what Gryffindor had to say – which I actually like because it is innovative and a little controversial:

So if an investor has 2 million at the age of 55, what does the conventional wisdom say? He could invest it and with a safe withdrawal rate of 4% count on $80,000 a year. 2 million of savings – with that all you get is a 80k a year. No wonder most people are depressed about retirement.

Now what if the investor takes a million of his nest egg and buys [a] business? She gets $200k of cash flow a year that is growing at 3% to match inflation. She can also reinvest the additional earnings from the other $1 million. She also gets some additional tax benefits of owning the business and can have some productive part-time hobby / business and not just spend her time on the golf course. It sounds all good to me.

And, here is part of my response that I posted on his blog post:

This is such an important topic that I am going to post a response on my blog [which you are now reading!] … I would really like to set up some debate on this because it is a very useful – but, potentially highly dangerous – retirement strategy that really needs to be well thought through before anybody implements.

Rightly or wrongly, some people just see me as a guy who ‘got lucky lucky in business’ (AJC: most of my $7m7y Net Worth actually came from investments … my leter/additional Net Worth came from selling some businesses), so it might seem natural when I say that Gyffindor actually appears to be onto something that is one of the central ideas in a recent book called Get Rich, Stay Rich, Pass It On.

The principle is that rich people keep their money for generations ONLY if they split their assets roughly one-third in a business, one-third in paper (stocks, bonds, mutual funds, etc.) and one-third in real-estate (incl. their own home):

Then, you might be surprised when I say that this is “the most dangerous idea in retirement planning that I have read”!?

What the book is recommending, that I find so damn dangerous for retirees, is this:

The authors of Get Rich, Stay Rich, Pass It On suggest that you need to invest, and keep invested forever, 25% – 35% of your Total Household Assets into ‘continually innovative enterprise/s’:

What we mean here by a continually innovative enterprise is one that either offers a product or service that breaks new ground or changes a traditional product or service so much that it becomes virtually new.

Now, that is something that you do before you retire so that you can retire rich … you take risks, you innovate, then you sit back and reap the profits (or sell) …

… it is not something that you get into in order to preserve wealth, which is exactly what the authors suggest:

At the lowest level of personal involvement, you might invest in a limited partnership, private equity plan, or venture capital program in which the actual management of the enterprise – possibly even the choice of the enterprise to invest in – is beyond your reach and outside your control.

Put simply: this recommendation is crazy …

… in my opinion, it unfortunately totally discredits an otherwise fine book written by authors who are respected consultants who assess the wealth habits of America’s mega-rich for the financial planing industry.

to me it seems that they are confusing the Making Money 201 wealth-building practices that rely partially on risk-taking strategies that may include a business – or, at least look a lot like a business (e.g. rehabbing/flipping real-estate; trading stocks/options etc.) …

… with the Making Money 301 wealth-preserving (i.e. retirement) practices that move you away from risk towards passive income!

So, is there a place for owning a business in a wealth-preservation strategy?

Absolutely!

I think that I speak with some authority on this: I have owned, operated, and successfully sold a number of businesses across a number of countries, many of which I owned at the same time!

I was an active owner in some and am still a passive owner in others …

Now that I am retired before 50, I am giving one part of a business away to my partner, converting another part into a ‘licence annuity’ that I will keep, and I am also keeping one other operating business as a semi-passive entity.

This last one is interesting, as it appears to support the thesis in Gryffindor’s post and the book that I mentioned:

This business is still in another country … it’s a finance company that turns over $40,000,000 per year with a only staff of 4 and nets me a cool $250k per year with about an hour’s work a month from me … I control it (through various legal entities) 100%!

Even so, here is the fundamental truth:

There’s no such thing as a PASSIVE business – as long as you own a business, you:

1. Will lose sleep every so often until it is sold or closes down, and

2. You will NEVER be truly retired.

As long as you can accept this level of semi-retirement worry and activity (which may actually HELP to keep you young!) then the Gyffindor Strategy could work for you, BUT:

i) I could accept owning in retirement: Big Name Franchises; Self-storage facilities; Mobile-home parks; Car-Washes; Your own well-established business that you are now ‘winding back on’.

ii) I would be a lot more concerned about: auto-repair and other skill-based businesses OR ‘vanity businesses’ – you know, the types that celebrities like to own (e.g. restaurants, bars, etc.).

iii) You would need to set out to have the business/es that you select run without you from the very beginning.

If you like the idea of owning a business in ‘retirement’, here’s a hint:

This strategy could hold a lot more attraction for you if you can also own the real-estate that the business operates from!

Why?

A. It assures the rental stream,

B. It assures at least some capital growth,

C. It hedges your bets against business failure (particularly if you plow excess cash generated by the business into the mortgage),

D. It provides a partial exit stream i.e. sell or give the business to management or a buyer under the condition of a long-favorable lease with upward-only ratchet clauses (rents increase at least with inflation).

A final thought:

I mentioned that I will continue to own at least one business now that I am fully retired:

– I founded this business and have owned it since 1991 … it has successfully run without my direct involvement for more than 5 years.

– I tried to sell it anyway, but it was only worth 3 times annual Net Profit before Tax … for that I will keep it for three years and take my chances!

– If I do happen to find a buyer who will pay me 5 or 6 times annual Net Profit before Tax, I will sell it.

– I do not count this business’s income towards my retirement portfolio’s ‘safe withdrawal rate’ because anything can happen with a business at any time … rather, I use the profit to build my portfolio’s total value, and spend the passive income from that.

If I do eventually sell it, THEN I will increase my portfolio’s withdrawal rate because I will have converted the business into a passive investment (cash, stocks, or real-estate).

Phew! This is one of my longest posts … so, now it’s your turn to comment!

STOP PRESS: Investor Finds Bank-Owned Bargains Galore!

Posted on April 3, 2008 by Adrian

I am (temporarily) shelving today’s post because a very interesting e-mail arrived in my in-box last night.

It was an e-mail newsletter from a foreclosure and real-estate listing service that I use, called RealtyTrac.

This particular article caught my eye, because I love anything that shows that real money is made when you ignore conventional wisdom; the headline read:

Investor Finds Bank-Owned Bargains Galore

“I just bought two brand new homes as REO from the bank,” said a Tennessee-based investor [Kirk Leipzig] in December. “I am buying five more new homes next week from the bank. I am buying $750,000 homes for $450,000 … This is the time to buy, and to make a killing out there,” continued Leipzig, who’s been a RealtyTrac subscriber for about nine months. “But you need to totally understand your market and educate yourself daily on your market. Then go buy, buy, buy.”

What’s most surprising about Leipzig is that he is not buying and holding – as many experts recommend in a down market – but buying and flipping.Now this really goes against conventional wisdom i.e. “housing prices are low … they can only go down … nobody is buying … you will be stuck with real-estate” …Maybe all true … maybe not … who knows? But, this guy has an answer for all of that:

“All the properties I currently buy are for flipping only,” he said, acknowledging that he always has a backup plan because of the difficulty selling in the current market. “I always buy a property now to flip, but in the back of my mind I know I can lease-option it, or rent it if it does not sell as quickly as I would like.”

I have to admit that ‘flipping’ real-estate is not in my particular comfort zone – I have never flipped anything (unless you call ‘buying’ majority share in a business for $0 down and ‘flipping’ it 18 months later for $6 million … but, that’s another story) …

However, for those of you looking to take some risk in what I would call The Business of Flipping Homes” as a somewhat risky way to make money in the short term (i.e. with a possible very large reward if you can replicate what this guy is doing) in order to then INVEST the excess proceeds into your long-term INVESTING (i.e. buy and hold) strategy, this just may be worth considering?

Whether you try and replicate what this guy does, in your own market, or try something else entirely different in the real-estate field “you need to totally understand your market and educate yourself daily on your market” …

… then, don’t just sit on your thumbs along with the rest of the herd … do as this successful business person does: go buy, buy, buy!

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Maybe Dale Carnegie was on to something?

Posted on April 1, 2008 by Adrian

In his famous book, How to Win Friends and Influence People (first published in 1936), Dale Carnegie – the great public speaker, personal improvement trainer, and prolific author – showed that success very much hinges on your ability to ‘influence people’.

In fact, as I think back, my greatest successes have been with people who have liked and admired me … and my greatest challenges have been with those who haven’t.

You can invent the greatest mouse-trap in the world, but nobody will beat a path to your door if they smell a rat 😉

This is Dale Carnegie’s summary of his own book; apply some of these ideas and you will succeed in life.

Remember, no matter what you do other people are the key to your success:

Part One

Fundamental Techniques in Handling People

Don't criticize, condemn or complain. Give honest and sincere appreciation. Arouse in the other person an eager want.

Part Two

Six ways to make people like you

Become genuinely interested in other people. Smile. Remember that a person's name is to that person the sweetest and most important sound in any language. Be a good listener. Encourage others to talk about themselves. Talk in terms of the other person's interests. Make the other person feel important - and do it sincerely.

Part Three

Win people to your way of thinking

The only way to get the best of an argument is to avoid it. Show respect for the other person's opinions. Never say, "You're wrong." If you are wrong, admit it quickly and emphatically. Begin in a friendly way. Get the other person saying "yes, yes" immediately. Let the other person do a great deal of the talking. Let the other person feel that the idea is his or hers. Try honestly to see things from the other person's point of view. Be sympathetic with the other person's ideas and desires. Appeal to the nobler motives. Dramatize your ideas. Throw down a challenge.

Part Four

Be a Leader: How to Change People Without Giving Offense or Arousing Resentment

A leader’s job often includes changing your people’s attitudes and behavior. Some suggestions to accomplish this:

Begin with praise and honest appreciation. Call attention to people's mistakes indirectly. Talk about your own mistakes before criticizing the other person. Ask questions instead of giving direct orders. Let the other person save face. Praise the slightest improvement and praise every improvement. Be "hearty in your approbation and lavish in your praise." Give the other person a fine reputation to live up to. Use encouragement. Make the fault seem easy to correct. Make the other person happy about doing the thing you suggest. Sound advice from one of the 'soundest advisors' of all time ... just wish I had paid attention sooner ... I would have been sitting on the beach, sipping pina-coladas 10 years earlier! AJC.

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A very useful tool for serious real-estate investors …

Posted on March 8, 2008 by Adrian

I often get asked about what tools I use for analysing various investment: for example, businesses, stocks, or real-estate.

Today, let me tell you a little about a very useful on-line data service that I use (and, you may have at least already heard of) called RealtyTrac … if you are an aspiring real-estate investor, this is definitely one of the tools that you will want in your kit-bag.

RealtyTrac is an on-line database, primarily known for listing foreclosures, but it also offers so much more:

Real-estate of all types (from homes to huge commercial developments); Foreclosure listings across the country; For Sale By Owner (not as many as the MLS, but you will find quite a few); Bank-Owned; and, Pre-Foreclosure.

The last two are the ones that you want to get into, because foreclosures can be difficult (often auctioned and you can’t be sure about title etc. before you buy) and because these last two are more like ‘normal’ purchases …

… that is, you can plonk down some refundable earnest money and do your due diligence before you buy. The rest of the sale process is somewhat similar to any other real-estate sale, but at generally ‘distressed’ prices … at least, if you are patient, selective, etc, etc.

For example, right now, I have set RealtyTrac to look for commercial property – retail, office, industrial, apartments – in the $1 mill. – $3 mill. range.

I have asked it to show me real-estate within the geographic areas that I am currently interested in, and of those last two types (i.e. Bank-Owned; and, Pre-Foreclosure).

I have recently added For Sale by Owner, because in the commercial sector 99% of owners will still have an over-inflated view of the real value of their real-estate, but 1% may have an under-inflated view (they may not have really researched the market; they may have under-managed, hence under-rented their property, etc.) …

… But I also have some pretty specific financial criteria that whittles down the hundreds of properties that may be within my nominal range … I will be happy to share these in a later post if enough people want to read about it.

I think RealtyTrac costs about $35 a month, so you need to be serious about buying before you signe up … but you can start a free trial if you just want to ‘kick the tires’.

Be warned: they take your credit card so be sure to call up and cancel before the trial period is over and they automatically start charging you!

7million7years

How to make 7 million in 7 years …

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