Instant Real-Estate Valuation Tool!

Posted on August 20, 2009 by Adrian

fear1 Today, I want to share one of my secret weapons for purchasing real-estate: it absolutely kills paralysis by analysis, and it works for all type of real-estate, including residential and commercial.

But, I warn you in advance, you won’t like it!

You’ll think it’s risky, you’ll think it’s stupid … then you’ll find out that I’ve actually used this method three times … well, four times … and, each time it’s made me more money than I could ever have dreamed of.

Let’s think about the biggest problem in real-estate: knowing how much to pay.

So, what are the solutions:

1. You ask a realtor – if you can trust them

2. You ask a friend – but, are they the experts

3. You ask (actually, pay) an appraiser

4. You put in the ‘hard yards’ (missing many potential bargains as you simply stand by taking notes) learning about real-estate until YOU are the expert.

Of all of these, 4. is the one that I would recommend …

… if I did it, but I’m way too lazy 😉

Instead, I use 7million7years Patented Real-Estate Valuation Tool

Here’s how it works:

I find a property that somebody else wants to buy … somebody who is already an expert in that specific property … somebody who has: measured the place, gone to council, hired an appraiser, looked at 1,000 identical houses in the same areas … in short, somebody who has made themselves an expert in this type of property, and has narrowed down his search to this one property that I also happen to be interested in …

… and, I make sure that I offer just a little bit more for the property than he does. Simple!

Does this work? Sure … I’ve done this on my own home, an investment condo, a quadraplex, and an office.

Is this the cheapest way to buy such properties? Of course not; by definition, I’m always paying (at least a little) more.

Can it make money? Absolutely … I’ve probably made at least $2 million profit doing exactly this.

… and, the best part is that I’d probably still be researching my first deal if I didn’t.

Here’s one example of how it worked:

I was driving around and saw a condo for sale … actually, it was up for auction that day. I noticed that the sign was from an ‘out of town’ agent – I love these properties because they usually attract the smallest pool of buyers because the agents don’t really know how to attract the buyers out of their own area.

I went home and grabbed my checkbook and rushed back because I wanted to look at the condo before the onsite auction started: I saw a young guy in coveralls walking around with a tape measure doing a final ‘once over’ … it was obvious that he had been though the place before and was planning to rehab and flip it.

This was perfect: I simply bid against him at the auction until everybody else dropped out and it was just him and me bidding … the difference between us?

He needed to buy at a low enough price to rehab and make a quick buck; since I was buying to hold and rent, I could afford to pay a little more … which is exactly what I did: every time he bid, I bid a little more … eventually, he could bid no more, and my $500 ‘overbid’ was enough to buy the property.

I was surprised that I bought it … but, not as surprised as my wife 😉

But, we still own it … it’s the smallest property in our portfolio, but is still cashflow positive and has appreciated by over $250k.

So, who are these ‘unofficial appraisers’ that you are looking for?

– Home buyers – we bought our first house by attending an auction for a house that we expected to sell for a lot more; we just kept bidding until the only other serious buyer dropped out and we bought it – much to our surprise – far cheaper than we ever expected. We knew it was a good deal, because we knew the other guy had been looking around the area for quite a while

– Developers – I bought my office for $1,000 more than a developer was prepared to pay to buy it for as a ‘tear down’ … so, I figured that I was buying the property at land value and getting a whole building for only $1,000 more. I used the property for my business then sold it (a year or two after I sold the business) for around $1 million profit.

– Owner / builders – as well as the condo, I also applied the same technique to a quadraplex that I eventually bought; this was rehabbed while we were in the USA (my accountant oversaw the project) and I have never even seen the finished product, yet it is cashflow positive and has already appreciated by around $1 million. Again, I only saw this building once: on the day that I paid over $1.25 million for it!

Now, I don’t recommend that you do quite as little ‘due diligence’ as I often do (or, don’t do … as the case may be), but you have to admit that it is the ultimate cure to paralysis by analysis!

Scary, and you won’t find this technique in any book, but it works 😉

My top posts!

Posted on August 19, 2009 by Adrian

These are my ‘best-selling posts’ … what does this say about me? More importantly, what does this say about you???!!!

BTW: I am not unhappy with any of these posts … but, I doubt that many of those who came to my blog via Top Post # 3. have stuck around 😉

The Myth of the IPO

Posted on August 17, 2009 by Adrian

CallidusIPO By now we all know that the quickest / surest path to stock market success is the IPO:

Take a company worth 3 to 5 times earnings and throw it onto the New York Stock Exchange (or NASDAQ, if you prefer) where it is valued at 15+ times earnings and … wacko! … instant billionaire.

Just ask the boys and gals at eBay, Google, Yahoo, and Microsoft!

Of course, there are a few problems, according to James B. Arkebauer, founder of Venture Associates, and author of “GOING PUBLIC: Everything You Need to Know to take your Company Public, including Internet Direct Public Offerings”:

1. Your company has to be IPO-size:

Many underwriters require that your company is generating sales of $10 to $20 million annually with profits of $1 million. To obtain a NASDAQ listing, you need $4 million in tangible net assets. However, most IPOs today are much, much larger with most offering sizes over $100 million.

2. IPO’s are expensive:

The following figures are considered minimums and many larger offerings will have costs that greatly exceed these numbers.

Legal – $50,000 to $150,000

Accounting – $20,000 – $75,000

Audit $30,000 – $200,000

Printing – $20,000 -$80,000

Fees $10,000 -$30,000

3. IPO’s take a lot of time and energy to execute:

[It can take] 3 -12 months (6-9 average – when well prepared) … [including] detailed discussions on information pertaining to:

Business product/service/markets

Company Information

Risk Factors

Proceeds Use (How are you going to use the money)

Officers and Directors

Related party transactions

Identification of your principal shareholders

Audited financials

4. The IPO process can fail; IPO’s are all about marketing, but that marketing can fail:

It’s often said that IPOs are sold, not bought. That means a road show and a Q&A with the company’s top officers – in short, marketing.

5. Your company may not survive after the IPO; according to Management Today:

The probability of a new listing surviving in its first ten years falling sharply to 37 per cent by the 90s from 61 per cent in the early 70s

Of course, you only need to worry about the company lasting long enough after an IPO to get your money out … I’m not sure about the USA, but in some countries your money is escrowed for two years to ensure that you retain some ‘skin’ in the company along with all the suckers … I mean shareholders … who bought in to your dream. In other words, an IPO is best seen as a way to raise capital for growth, rather than a ‘quick, easy, and profitable’ exit for the owners.

Is this an opportunity worth pursuing?

Posted on August 13, 2009 by Adrian

My co-author [of my new book … still in the final stages of development], Debbie, has just written this article for Entrepreneur.com …

… speaking of entrepreneurs, here is a question that you need to ask yourself NOW before it’s too late:

Is this an opportunity worth pursuing?

After all, time is precious … even more precious than money!

Let’s backtrack a little; let’s assume that you have:

1. Chosen Your Number and Your Date, and

2. Calculated your Required Annual Compound Growth Rate, and

3. Selected your Growth Engine.

So, you have – hopefully – selected your Growth Engine (it could be stocks, it could be a business, it could be real-estate investing, etc.) in the hopes – and need – that it will carry you to Your Number by Your Date.

But, what do you think it will mean if you are wrong?!

Let’s say that you are five years down the track and find that you chose the wrong Growth Engine: it can’t produce enough steam …

… now, if you rerun your calculations, you will probably find that your Required Annual Compound Growth Rate has shot into the stratosphere!

In reality, you have probably blown your chances of every reaching your Number … and, certainly delayed getting there by at least 4 or 5 years.

This ALMOST happened to me.

Except, that I was lucky enough to be challenged by Michael Gerber (in his seminal work: The E-Myth Revisited) to ask myself UP-FRONT: is this an opportunity worth pursuing?

So, I created a business model for my small, but slowly growing business … and found:

I had 5 corporate clients at that time … not bad, I thought for 5 years hard work. BUT, my models showed that I would NEED EVERY SINGLE ONE of Australia’s Top 1,000 Corporations as clients WITHIN 5 YEARS in order for my business to generate the $1.5 million after tax annual net profit that I calculated would be required in order to sell my business in just 5 short years for the $5 million that was my then Number.

What was my likely outcome if I hadn’t performed this relatively simple calculation?

Well, if it took me 5 years to get 5 clients, then the next 5 years should lead to … what? … 5 to 20 more such clients? And, I needed 1,000 … in fact, ALL of them!?

Obviously, unachievable on so many levels that my Number was doomed, if I didn’t do one simple thing:

Change my business plan!

In fact, that’s exactly what I did … unfortunately, twice (because the laws in Australia changed, making my first revision unworkable; thankfully, that problem arose … and, was solved .. within 2 years) … which is why it took me 7 years to $7million rather than the 5 years to $5million as I had originally planned … but, it could have been A LOT worse.

Here’s what to do:

Run the numbers now … see if your Growth Engine can get you to Your Number by Your Date … do it on paper now, rather than finding out in ‘real life’ when it’s already too late. If it can get you to Your Number by Your Date … go for it, what are you waiting for?

But, if it can’t …

… change Growth Engines, revise plans, do ANYTHING, until you find a way that can 🙂

Paralysis by Analysis!

Posted on August 12, 2009 by Adrian

flipping-houses I have been asked, by way of two comments to this post, to talk a bit about my web 2.0 businesses (how I intend to make money with them) and the ‘distressed business’ that I am looking to buy … both of which I will post about, shortly 🙂

But, today I want to talk a little about residential real-estate:

I was having coffee with my builder-friend who is helping me renovate my house (hopefully, bringing a $2 million + renovation cost ‘blowout’ to a mere $1.5+ million) and his nephew-in-law happened to drop by.

He is 30, single, and wants to do his first development: he wants to purchase a block of land; subdivide it; and, put two town-houses (i.e. houses … just a little smaller than usual) on the block; then sell them.

When asked: “So? When are you building?”, he says that he has a lot of questions, and has been reading a lot of books telling him different things. He is getting confused … he is making the simple difficult … he is suffering from paralysis by analysis!

Look, this type of development is really the simplest thing in the world … even a 14 year old can do it:

My son has restarted his eBay business in Australia; he sells high-end headphones that he sources from China and sells on eBay in Australia. He buys 5 or 6 at a time (total cost = $500+) and sells each for circa $180, making around $40 profit on each. He’s 14 … he’s happy … and, as far as 14 year old standards go, he’s rich (at least, getting there).

And, it’s simple:

A. He finds a product that he wants to sell (headsets)

B. He researches the market for them (who’s selling them on eBay; for how much; and how many are being sold?)

C. He finds out how much it will cost him to buy them

D. He calculates his shipping and packaging costs (from China to Aus; from Aus to his customer)

E. He adds C. and D., subtracts the total from B. and goes ahead if the answer looks attractive (to a 14 y.o $40 a pop profit is huge)

Simple!

So it is with this type of real-estate deal (i.e. buy-to-sell, rather than buy-and-hold):

1. Find out how much your end product will sell for (drive around and look at similar brand-new town-houses for sale)?

2. Find out how much the land will cost to buy (drive around and look at blocks of land and/or tear-down houses for sale)?

3. Find out approx. how much it will cost to build (drive around and look for similar buildings going up and ask the general contractors / builders for a ball-park estimate to build similar on your land)?

4. Add 2. and 3., subtract the total from 1. and go ahead if the answer looks attractive (to a single 30 y.o. $50k – $150k profit for the whole project is huge)

If there’s any ‘secret sauce’ to this, it’s to become the expert in your end product … spend a month (max.) driving around and looking at every similar home currently for sale; get a feeling for how they look; how they are built and fitted out; see which ones sell quickly and why; and – most importantly – learn to set the right price.

The other parts will take far less time, because your goal isn’t to build at the cheapest price, or to buy the land at the cheapest price, or even to milk every drop out of the deal … it’s simply to sell for more than it cost you to buy i.e. to make a modest profit and learn from the process.

Buying real-estate – in a flat-to-rising market – to add value (by building, rezoning, rehabbing) then ‘flip’ is the easiest thing in the world … but, if you get caught up in the irrational exhuberance that always precedes a market crash, then it’s the hardest thing in the world; so buy now, or soon, when the market has only one direction to go: up!

A hierarchy of one?

Posted on August 10, 2009 by Adrian

Org Chart

One of the ‘growth engines’ that I used to make my $7 million in 7 years was Business [AJC: actually, I used it to fuel a real-estate investment strategy much like that described in my Perpetual Money Machine series], as I suspect it will be for many readers so, from time to time we will cover business topics.

Therefore, I was interested to read this comment on A Closet Entrepreneur from a reader who runs their own interesting site:

I have a section [in my business plan] defining the roles and responsibilities for all jobs within the new company, even though initially all the jobs will be filled by me.

This is interesting because this is what Michael Gerber suggested that I do when I read his classic: The E-Myth Revisited …

Think about it: you are busy doing everything in your business either as a sole operator or because you still have few staff, yet you are going to take precious time out for some seemingly esoteric exercise?!

Let me tell you how important this ‘useless waste of time’ task was for me:

When were only a handful of employees (perhaps 4 or 5; I can’t recall exactly how many there were) I promoted my first ever employee, who was still with me (and still is today!) to supervisor of the other 2 or 3 staff – by default, 2IC to me …

… then, when we won a major new contract and moved – as we had suddenly outgrown our old office – our new location was mostly open-plan but outfitted with four ‘closed-door’ offices, as well.

Naturally, I took one office for myself, and put the new supervisor in another since he was still the only manager and it didn’t make sense to leave the offices empty. Then my accountant moved in, taking another office (a great move for both of us!) and the final office was taken up with office equipment: servers, copier, faxes, etc.

The problem was the company kept growing [AJC: a GREAT ‘problem’ to have 🙂 ]; soon, to 14+ staff while still in that location, and I had to hire a more experienced manager, as well … now, who gets the office? I could hardly kick my most loyal employee out, could I?

Then I came across The E-Myth Revisited and realized that I needed an organization chart NOT for now, but for when we were ‘done’ … so, I drew up an organization chart for 60 people.

Much like the reader who commented above, many of the roles were triple- and quadruple-teamed, even though we had 14 employees by then … how many times does 14 employees go into 60?! 🙂

Now, here’s the thing:

1. When we moved into our next office, I outfitted it for 50 people immediately (even though we were only 20-strong by then), with room for 10 more.

2. I also outfitted this office mainly as ‘open-plan’ but with 4 ‘closed door’ offices … this time I had no problem leaving them empty. They were reserved for Senior VP-level management of which, at that time, I had none!

3. Over time, we grew to 30+ staff and knew exactly what roles needed to be filled and when, because the Organization Chart that I drawn up NEVER CHANGED.

4. When we opened in the USA, with up to 100 staff, that same Organization Chart, with only minor modifications, became the US Organization Chart, making our HR issues that much easier to resolve.

So, if you have a business of any size … it’s time to draw up your own Org. Chart 🙂

Hint: Keep the chart simple and hierarchical: the old-fashioned structure of CEO/President => Sales/Marketing + Operations + Finance/Admin as the three positions underneath the CEO (President) still works just fine.

Nothing is impossible!

Posted on August 9, 2009 by Adrian

[pro-player width=’530′ height=’253′ type=’video’]http://www.youtube.com/watch?v=mKOEQVgONh0[/pro-player]

If you ever needed inspiration to take immediate, massive action to get off the ‘rat race’, just check out this video …

… but, before you wave it off as just another thing to laugh at the Japanese about, think about all the things that YOU do in your day to earn a meagre crust: flip the bird to another driver; have one flipped to you; kiss up to the boss; rush to meet a stupid, meaningless deadline; steam/iron/fold another shirt; and the list goes on … and on … and on … and …. [groan]

Of course, there’s another message: I bet you never thought it possible to get all those people ON the train? How about your Number … does it seem possible? 😉

Adrian

Acknowledgment: Thanks to Brandon for the video http://www.brandonlaughridge.com/all-aboard/

Will a million dollars be enough when I retire?

Posted on August 6, 2009 by Adrian

1MillionDollarBill01

It seems like we have visited this question a lot … on the other hand, we have new readers every day, so it’s important to revisit the basics – and, I hope, it never hurts us to refresh our point of view either.

So, I couldn’t resist jumping in when Peter of Bible Money Matters posed the question: “Will a million dollars be enough when I retire?”

I told Peter that I love this question because it’s such a loaded one …

… we’d love to BELIEVE that it will be enough, but for most, it won’t.

Why?

Simple mathematics:

If you have $1 million (by the time that you retire in, say, 20 years) and inflation is averaging 4%, then the first 4% of your return goes just to keeping up with inflation. So, now just keeping your money in the bank isn’t enough.

So, let’s say that you can earn 9% on your money (in the stock market … crashes – and, ridiculously high mutual fund fees – aside? Hopefully!), then that’s ‘just’ $50,000 a year after inflation.

But, if you’re retiring in 20 years, $50k is (again, ‘just’) like $25k today [AJC: remember, 4% inflation roughly halves your buying power every 20 years] … so the real question becomes:

Will $25k a year be enough when I retire?

Now, that’s up to you to decide …

… all I can say is that, in my own retirement years, I’m ‘struggling’ to live off $250k a year

The Myth of Passive Income …

Posted on August 5, 2009 by Adrian

money-sign-tap Flexo at Consumerism Commentary says that the Wikipedia entry on “passive income” is WRONG.

Flexo is right!

Wikipedia says:

Passive income is a rent received on a regular basis, with little effort required to maintain it.

OK, that’s pretty obviously incorrect, so let’s adjust this slightly to say: “Passive income is any income received on a regular basis, with little effort required to maintain it”.

Better?

Yep! It does sound a little better – aside from the repetitive tautology 😉 – so, let’s see a little more of the Wikipedia entry:

Some examples of passive income are:

Earnings from a business that does not require direct involvement from the owner or merchant;

Rental from property;

Royalties from publishing a book or from licensing a patent or other form of intellectual property;

Earnings from internet advertisements on websites;

Residual income, repeated regular income earned by a sales person, generated from the payment of a product or service, that must be renewed on a regular basis in order to continue receiving its benefits;

Dividend and interest income from owning securities, such as stocks and bonds, is usually referred to as portfolio income, which may or may not be considered a form of passive income. In the United States, portfolio income is considered a different type of income than passive income;

Pensions.^{[dubious – discuss]}

I love the little ^{[dubious – discuss]} attached to the last one …

… it should be attached to all of them!

You see, whilst I have also been guilty of (mis)using the term “passive income”, at least I know fantasy from reality; let’s start by reexamining the Wikipedia list:

Earnings from a business that does not require direct involvement from the owner or merchant;

Q: If you put the owner of such a business in one corner of a room with Santa Claus, The Easter Bunny, and the Tooth Fairy sitting in the other three corners, and you put a bucket of gold in the middle, who would be the first to get to the gold?

A: No one, because there is NO SUCH THING as Santa Claus, The Easter Bunny, the Tooth Fairy … or, a business that does not require direct involvement from the owner!

Rental from property;

This is great, especially if you have (i) a flawless property manager, and (ii) NO taxes, vacancies, repairs, maintenance, mortgage payments, refinancings, etc., etc.

Royalties from publishing a book or from licensing a patent or other form of intellectual property;

Agree; totally ‘passive’ … that is, AFTER the book writing, editing, deadlines, interviews, and book signings … and, BEFORE the next book writing, editing, deadlines, interviews, and book signings.

Earnings from internet advertisements on websites;

Please! Exactly HOW do you ‘passively attract’ readers to your site to get the ‘earnings from internet advertisements on websites’?!

Residual income, repeated regular income earned by a sales person, generated from the payment of a product or service, that must be renewed on a regular basis in order to continue receiving its benefits;

Asked: “Residual income, repeated regular income earned by a sales person, generated from the payment of a product or service”
And, Answered: “that must be renewed on a regular basis in order to continue receiving its benefits” … we addressed this exact issue for (another) Scott, not so long ago!

Dividend and interest income from owning securities, such as stocks and bonds, is usually referred to as portfolio income, which may or may not be considered a form of passive income. In the United States, portfolio income is considered a different type of income than passive income;

Now, this is interesting – if it is indeed true that in “the United States, portfolio income is considered a different type of income than passive income” – because (at least, to me), dividend and interest income is one of the MOST PASSIVE of all of the items on this list … interest rate changes, market crashes, poor earnings reports, and other reasons that a Board may reduce or eliminate the dividend, aside.

Pensions.

Strange that whomever reviewed this entry felt this one to be ‘dubious’ … ‘old style’ pensions (like government ‘lifetime pensions’, and the ones that are sending the car companies broke) seem to be the most passive of all of these!

If you disagree, please drop me a comment (below) then try and go on an extended vacation and NOT: (a) answer your cell phone, or (b) check your e-mails, or (c) worry about your [insert “passive income” source of choice] 😉

A sample business plan template …

Posted on August 3, 2009 by Adrian

Because I have asked our Millionaires … In Training! to take a “dry-run” at the financial section of a business plan – to see if the ‘growth engine’ that they have selected to reach their Number – is “an opportunity worth pursuing”*, now seems like a great time to tell you how I go about business planning …

… also, it’s an excuse to share a business planning model that I built – keeping in mind that finances and numbers are actually NOT my strong point.

NOTE: Since I can’t work out how to attach spreadsheets to my posts here, you will need to go to this forum thread and scroll down in the comments until you find a reply with the same heading as this post, the spreadsheet IS linked as an attachment there: http://shareyournumber.ning.com/group/7millionairesintraining/forum/topics/will-your-craigs-list-ad-take or try this link: http://shareyournumber.ning.com/group/7millionairesintraining/forum/attachment/download?id=2494516%3AUploadedFi38%3A4669

Once you download it (hopefully, it works with most versions of excel?), you use it like this:

[Hint: double-click on various cells to see which ones are data and which ones are formulas]

1. Start with the Pricing Tab, and set up your pricing model – if you are going to use this sheet, which is designed for an online subscription-based business (like SurveyMonkey.com, but with the usual 7m7y Patented ‘Twist’) please try and keep the data in the same places unless you are comfortable fiddling formulas … each sheet is tied to data in the other sheets! But, it shouldn’t be hard to create your own, either …

2. The go to Business Volumes and try and work out what your potential market it, and how many you will get for each product type that you are offering … we are offering survey services to all businesses but feel; that out ‘sweet spot’ will be in businesses with 10 to, say, 100 employees.

3. Then go to the Subscriptions tab, which is simply where I summarize the info that I came up with in 2. … it’s not hard to think ahead, here, and see that my SALES REVENUE will be be based on this info multiplied by what’s in the Pricing tab (1., above), which is why we work in this order.

4. Your major cost will PROBABLY BE PEOPLE -and, the space to occupy them – so let’s move on to the HR tab; since this is an IT-based business you may need to modify the categories to fit your job titles, and the salaries and numbers of such staff. You can see that I am paying commercial rates, even though I will do this and ‘frank’ will do that … we want to see if our business can ‘stand alone’ if it needs to. You can then rerun a ‘bootstrap’ version of this plan where you eliminate as many startup costs as possible by having your relatives do all the work 😉

[HINT: in the startup phase, though, $85k is plenty to pay a CEO who is getting some ‘sweat equity’ as well]

You will see that I have built in models of occupancy costs (which includes an allowance for rent, desks, and chairs) based upon some USA industry chamber of commerce-type estimates that I found online.

5. Now, the P&L should VIRTUALLY produce itself!

[HINT: Again click on cells to see which ones are formulas and which ones are numbers; IN GENERAL: leave the formulas alone, but check the numbers in case you need to put in ones that you prefer]

Voila! … 7Million7Years Instant Business Plan 🙂

* Thanks to Michael Gerber for teaching me that you need to find out UP FRONT if your business is “an opportunity worth pursuing”.

7million7years

How to make 7 million in 7 years …

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