Monday, 3 February 2014

The Olympics and Real Estate Investing

I love the Olympics. There is something about watching professionals who have prepared their mind, body and heart to compete against the world for the greatest sport medal of all time - the gold medal. I can only imagine what it would be like to be on that stage to perform for the world. I was touched when Alexandre Biodeau won the first ever gold Medal for Canada on their home soil.

Don't get me wrong I am all American and was happy that USA's Bryon Wilson did not get knocked out of his Bronze Medal seat when the last contender took his place at the top of the run. Every time I watch the Moguls I remember my great friend Burke Alder that was a contender for the 2002 Winter Olympic Games in his home town of Salt Lake City. He was on the US Ski team and was going to be a contender for an Olympic spot. Several months before the Olympics in nationals he blew out his knee and his Olympic hopes where taken over night.

As I watched these Amazing Mogul Freestyle Athletes, I also thought about real estate investing and free style skiing. What can we learn from Freestyle Skiers that may help us as real estate investors? If you think I am being too clich├ęd or fake you don't know me very well. I learn from everything and I mean everything. I also compare anything of value to my life and in doing this I found some very cool parallels of Mogul Free Style Skiing and Real Estate Investing. I look forward to sharing these with you. They include the following:

1. Be Prepared

2. Point Your Ski Tips Down

3. Find Your Line

4. Choose Your Trick Wisely

5. Time Counts

6. Jump To Last Impression

7. Last Mogul Field

8. Celebrate

1. Be prepared. You can't stand at the top of the Olympic Mogul Ski Run without having some serious preparation. The number one problem we see with real estate investors is they have no idea what a property is worth. Over 75% of people we talk to are off on their value of what they think the property is worth and what we KNOW the property is worth. Don't take the word of one person on what the property will sell for especially if the person is the seller or getting paid as a part of the transition, even if they are representing you. It is interesting when we have our independent evaluators look at a property and determine a value. When we go back to the borrower and let them know what the values came in at, so many borrowers want to "fight the value". You have to be kidding me. If two independent evaluators go to a property with no judgment and get paid to determine what the home will sale for, that is pretty unbiased. Let me give you an example. Last week we had two evaluations that came in. One was at $145,000 and the other was at $148,000. So the two evaluators that live in the area, that have no motivation other than getting paid to give a value on the property, that do not even know each other, come within $3,000 of each other on the price. We then told the borrower and the borrower thought they were wrong and wanted to challenge the value. Hello, Wake Up! We just saved you from a serious train wreck. We don't turn down deals because of value we just require the borrower brings in the difference between what we can lend on the property and what they are buying the home for. But don't get so emotional on a deal that you can't see reality.

2. Point your ski tips down. Continuing on our Olympics of Real Estate Investing, Judges look for you to always have your ski tips pointed down. Why? It is less about the form as it is showing the quality of the technique and also the courage to take on controlled risks. This creates a lot of speed that has to be controlled. We watched several of the U.S. Free Style contenders go out of control and not get a score. Don't let the speed increase more than you can handle.

As a real estate investor this means not to take on more than you are able to handle. I am really, really good at homes under $150,000 in a certain area of town... really good. Any time I go out of that area I get an education that I don't want. When I say I get an education I mean it costs me time and money; kind of like going to college. I would rather make money then go back to college. I did not particularly like hard seats and boring professors.

Knowing how to point your real estate ski tips in the right direction will make you successful as a real estate investor. Keeping your turns under control and not getting out of the speed you are able to handle. There is such an allure for higher priced homes. Many investors think that homes in the million dollar range have so much profit potential. What many investors don't realize is that with great profit comes great risk. The higher the price the higher the risk, if you think about it, what does a 1.2 million dollar home have that a 1 million dollar home does not? The answer is simple, it is up to interpretation. Now let's take the same example. What is the difference between a $150,000 home and an $180,000 home? That answer is A LOT. Typically a different neighborhood, different quality of work, size, garage and many, many other things!

It is also important to think about how many buyers are in that price range. The higher the price range the fewer the buyers pool there is. Meaning if there are 10 potential buyers for a million dollar home there is 100 potential buyers for the $150,000 home. This drastically increases your speed and price of getting your home sold.

Keep Your Ski Tips Down!

3. Find your line! When a Mogul contender heads down the course they constantly have to choose a line to follow. This is impacted by visual conditions sun, wind, snow, lighting at nights. With each bump they have to be looking forward to what the next line is.

We find so many real estate investors that don't have a plan before they get started with the property. They find a property that may even be a good deal but they don't find their line. We have even seen real estate investors that have found a good deal that they really could have made profit with but they end up breaking even or even losing money. Why you ask? Because they never found their line.

When you are doing a rehab and retail before you are done with your due diligence, or even before you make an offer on the property you need to know A. Exactly what work you are going to do to the property B. Exactly how much the work is going to cost C. Who is going to be doing the work D. How long it will take to get the work done to the property.

No Olympic Mogul ski is going to Guess on their line. They are going to have a defined line for the first few turns before they even leave the gate. Don't guess on repair costs, even if you have experience with repairs get the guys out that are going to be doing the work. Get firm prices from everyone that will be involved. I like to do this once I get a property under contract. We typically ask for a 48 hour time to inspect the property. During this time we set a meeting for every person that will be doing work on the property to meet at the same time. So the Flooring guy, the cabinet guy, the painter, the handyman, electrician or plumber if needed all show up at the house and look at everything and give us a price on the spot. This cuts down on back and forth of conversations and makes everything efficient. The bird dogger we buy properties from likes this as well because they know we don't drag out the situation forever, they know that in 24 hours or 48 at most my earnest money goes hard.

Find your line by knowing what your cost will be before you leave the gate.

4. Choose your trick wisely. Air only counts for 25% of your score. So if you do too big of a trick and don't land it then you lose. It is really that simple, and really that harsh. However if you don't do a decent trick you can lose it as well. Choosing the right trick based upon your situation, the conditions, what the other competitors are doing is essential to being a successful Mogul Free Style Skier.

We see too many real estate investors fixing up homes as if they want to live in the home. Meaning they make changes to the home as if they are the owner. Making things too personalized, doing dark accent walls that some people may like and others may hate. Or doing cabinet and counter top choices that some people will love and others will hate.

You need to pick your tricks wisely. When completing a rehab and retail we frequently see too many people doing too much to the property. When you put a property under contract go look at some of the homes that are currently on the market on the same street. With those homes you will know if Granite counter tops are standard in the area or if you can just use laminate. You will know if you have to get upgraded appliances or if lower end appliances or even used appliances will work and many, many more. I recommend that you do what is standard in the area and then I like to throw in a little something extra. For example if every home in the area has vinyl floors I like to do tile in the kitchen, or maybe do nicer carpet than everything else in the area. So for each house I recommend that you do something to bring some sizzle than all the other homes.

The Key is to have your home the nicest. I think this is accomplished by having new carpet, new paint, and everything clean and working and then to add a little sizzle, one thing that you do extra to spice up the home. Choose your tricks wisely; if you over do it you lose, if you don't do enough you lose. Knowing the other homes for sale will tell you what you are competing with. If you know what tricks your competitors are throwing in you will know what type of tricks you need to do to win the Gold!

5. Time counts. Pick up the speed. After the first jump comes, the longest set of mogul's begin. During this time contenders focus on keeping their knees close together and increasing the speed without losing control. This is a difficult balance of control and lack of control.

When you are in the middle of your rehab you need to pick up the speed. You also need to keep things under control. Time is a Gold medal when it comes to Mogul Free Style skiing just like Time is Money when it comes to a Rehab and Retail Investment. Too many investors act like they have all the time in the world. You should have guys on top of guys in the home working. I can have an entire home completed in 30 days. Our average basic rehab takes 2 weeks. Our more detailed takes 30 days and on some occasions 45 days. Every day costs you money.

We set a completion deadline for all of our repair guys from carpet to paint and everything in-between. I like to give my repair guys a bonus for getting properties done before schedule. So we all agree on the completion deadline. I then look at the cost of my hard money per day. I then give 25% of my per day cost as a bonus if 100% of the property is completed in that time frame. And I mean 100% of my contracts say no leaky faucets, no loose screws, no door handles or cover plates off, 100% complete. In model home ready condition. If they go over the deadline they pay 50% of my per day hard money cost. For example if the per day hard money cost is $100. Then I give them a $25 per day bonus for early completion and a $50 per day penalty for not getting the work done. Why is there a difference? Because we all agreed on what the completion deadline can be. So anything before that is really a gift to the workers. Anything after that is really a cost to you as the investor.

Pick up the speed, time will cost you Gold in your pocket just like the lack of speed can cost a Mogul Freestyle skier a gold medal.

6. Jump to the last impression. The second jump is the last chance for the medal contender to make up for lost time by getting some distance or by throwing down a serious trick for some added points. Having a good knowledge of the race you have ran so far and how well you landed your first trick will help you.

Your Rehab needs to give people a reason to STOP the car. I used to think that outside landscaping did not sell a house. Boy was I wrong. If people don't like the outside you will never get them in the inside. Now don't overdue it! Again look around the neighborhood. You only need to be the same or a little better than you neighbor. I make up for this by doing little or nothing in the back yard. If they like the front yard and they like the inside they can do their own work to the back yard. You have to know when to throw down a serious trick and when to just go for the speed. This is a serious judgment call that can not be overlooked.

You don't have a second chance to make a first impression. As a real estate investor you have to look at homes the way buyers do. Buyers are looking for the best home, for the lowest price in an area they are happy with. Although you may not think that you are in competition with homes in other areas you are wrong. Buyers are thinking am I willing to drive an extra 15 minutes to work if I can have double the size home? Or would we rather be in the city and have a smaller home but no commute. In being successful you need to look at what buyers are looking for in a home. Simply, you need to be the nicest home with the lowest price in your area and the home will sell. Homes sell every day and your home will sell if it is the lowest home and in the best condition.

7. Last mogul field. Once the second jump is done there is still a mogul field that cannot be overlooked. You can see the finish line right ahead but if you focus too much on the finish you will hit a Volkswagen size hump and fall over. This will ruin your chances of a finish let alone the hopes for a medal. This last mogul field is overlooked because it is a bit smaller than the others but it's important - it will make or break the race.

This last mogul field for a real estate investor is finding the buyer. In reality if you have done everything else right up to this point finding the buyer should not be too difficult don't spend the money until you have it in your hand. My philosophy is very simple. A. Be the 3% under the other comparable homes in the area B. List with a quality agent and don't skimp on the Buyer agent commission. I would get a discount from the seller's agent but make sure the buyer's agent gets a full 3% commission. Make sure to put in your contract the amount that the buyer's agent will receive. Most contracts just state the total commission that is paid. Create an addendum to the listing contract that shows exactly how much the buyer's agent and seller's agent will receive C. Have the house better than everyone else's. I don't care what market you are in, if you are the lowest price house and the nicest home in the area you will sell, fast. That is the key. Sell Fast and get on to the next deal. There is a cost to hold the property, not just the cost of your money, but there is an opportunity cost on the next deal that you may miss, or something else you can do with the money. Holding the property also comes with risks. Too many investors think you can always start high and come down over time. This is stupid! Price for what the property is going to sell for. Too many investors think that some idiot from another state (like California) is going to come and pay more than what the property is worth. Price the property for what it is worth and then discount it 3% and you will have buyers coming. In some cases you will get more than the asking price because you may end up with multi offers. Yes you heard me right multi offers in this market place. The key is if you are the best home at the best price people will fight over it.

The Last Mogul field is easy if you have the right strategy and you don't plan on a Jet engine to push you faster to the finish or plan on some idiot to over pay for your property.

8. Celebrate! Even the elusive Dale Begg-Smith from Australia celebrated when he crossed the finish line. This guy has no emotion and does not like the press at all. In fact on the medal podium it looks like he can't wait to get out of the spot light. But the second he came across the finish line he looked like a kid in a candy shop. He Celebrated in his own way. When you finish your rehab and retail, celebrate. Now don't get ahead of yourself, let's define finish. Finish is when you have the check in your hand and your hard money lender has been paid back. That is the time to celebrate. Don't make the mistake of spending the money just because you have the property under contract. Problems happen, in real estate nothing is a sure thing. Lenders go out of business, people don't fund, buyers lose jobs, inspectors don't like the house, and the list goes on and on.

So once your Hard Money lender is paid off and your check is in hand it is time to celebrate. I like to set a goal when I originally purchase the property. Nothing crazy just something to represent the hard work, for example taking my wife to a really fancy restaurant, getting a new chair for the house or something small, but something you would not normally do. Don't overdue it, be conservative. But do something fun and Celebrate. By the way, if by some slim chance Dale Begg-Smith sees this article, for the record, the world saw you smile when you crossed the finish line and congrats on the silver medal. I hope you took some time to celebrate!

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