I don’t want a bumper sticker that reads “Proud to be an American,” although I am proud of what my country has accomplished.  I didn’t earn my citizenship – I was given it as a gift at birth.  The best gift I have ever received.  What I feel is gratitude.

Think of the people who came here over the last 233 years, including my ancestors and maybe yours.  Many of them didn’t come because they wanted to vote or to run for office.  They came here because the United States, more than any other country founded before or since, offers opportunity.  The opportunity to work, to create, to achieve, to provide a better life for themselves and their children.

My grandfather Jim Hickey came from Ireland in the 1930s.  At that time Ireland was a mostly independent, mostly free country, but desperately poor.  There was little industry in his area and no chance for an uneducated young man to succeed.

Gammuck Jim worked at backbreaking jobs until he was finally hired on by U.S. Steel in Worcester, Massachusetts.  His efforts led to a promotion to foreman.  When he retired, he owned three houses.  Had he stayed in Ireland, he might never have owned one.

My wife’s grandfather Erminio Ricci came to the United States in 1919 as a teenager, settling in Portsmouth, NH.  He worked as a construction laborer and as a “sandhog” – incredibly dangerous work digging the foundation for one of the bridges connecting Portsmouth to Maine.

In those days, little attention was paid to worker safety in any industry.  Fatal accidents were commonplace.  Sandhog work was considered so dangerous, however, that the projects did have at least one safety regulation – workers could not work more than a set number of hours.  Exhausted workers could easily commit deadly mistakes.

Erminio Ricci, saving money to open his own contracting company, punched in under two different names so that he could work double shifts.  He was smart as well as hardworking, and no accidents resulted.  However, the two companies he founded, Ricci Construction and Ricci Lumber, are still in business today.

The United States attracts hard workers because it provides opportunity.  Ricci could have worked his whole life as a laborer in Italy.  In the United States, however, he could develop into a businessman – making deals, initiating projects, and building success for himself.  With discipline, hard work and time, he could become a “real American.”

The wheel turned again in 2005

The newest member of our family immigrated in January 2005.  My daughter Gianna was an 14-month-old orphan in China.  Years ago – things may be different now – Chinese girls who were not adopted faced an uncertain future.  Parentless and poorly educated, they often grew up to become maids, peasants or even prostitutes.

Opportunities in China, even now, are limited to all but a select few.  One reason for this is the “hukuo” or residency permit system.  Just as in our country, some areas are much more prosperous than others.  People from rural areas (as Gianna was) cannot get permits to live in modern cities like Beijing or Shanghai.  In those rural areas, the schools are worse, the jobs are worse, and the chances for long-term success are much less.  College is unlikely.  Business ownership is next to impossible.

Please understand that we didn’t adopt Gianna out of a selfless desire to give a foreign child a better chance.  We wanted another child and did not want to go through another pregnancy – my wife’s first had been challenging and risky.

Gianna will have a better life here because her opportunities are so much greater.  She knows she’s from China, but she doesn’t think of herself as Chinese – she’s an American.  And like most five-year-old girls, she has a million different ideas for what she might do when she grows up.  She wants to fly helicopters, be a doctor, and be a mommy.  Who knows what her future might hold?

The only job not open to her is President of the United States, and we’re working on that minor Constitutional issue.  If that doesn’t work out, I suspect she’ll become president of something else.

Erminio Ricci and Jim Hickey would have liked Gianna a lot.  They would have recognized something in her that they possessed themselves.  One difference is that they had a perspective that she may never develop – they knew in their bones what life was like in the old country, and why life was better in the new one.  They knew they were lucky to be Americans.  As are we all.

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Tomorrow is our nation’s birthday. Happy 4th of July to one and all.

With what is happening today, it’s a wonder we’ve lasted as long as we have. I think one of the reasons we seem to keep overcoming depressions, recessions, housing bubbles, credit crisis, etc is because we are naturally givers. We the people always are willing to help those who have been stricken with problems.

I will mention only one problem solver in this post out of the myriad of candidates. The fellow was the son of Lebanese immigrants who made it big in Hollywood and whose family name still has credibility.

The Man, The Myth, The Legend

I don’t know how much myth is involved with the Thomas family. Everyone has heard of Danny and his daughter Marlo. Danny is no longer with us but his daughter Marlo is alive and well. This post isn’t as much about her as it is him.

His movie and TV credits are well known but I’d bet most of us couldn’t name one film or TV show in which he starred. But, on the other hand, I’d bet we could all mention his creation - St. Jude Children’s Research Hospital located in Memphis, TN. It opened in 1962 and had such personalities as Frank Sinatra, Milton Berle, Dean Martin and Elvis Presley as supporters/endorsers.

Not many of us know Thomas founded the American Lebanese Syrian Associated Charities to raise the money to build, operate and maintain the hospital. How about that for a surprise in today’s environment?

Four Pillars

Thomas founded the hospital on four pillars that still stand today. It was to provide unsurpassed patient care. It was to provide unparalleled scientific research. It would be a hospital without walls taking in children from all over the world and never deny care because of race, religion or ability to pay.

Doesn’t this sound like the basis for today’s equal opportunity mantra? Just agree because it does.

One of their accomplishments include raising the survival rates for childhood cancers from less than 20 percent to more than 70 percent. Read that again, it is that impressive.

Mind you, through all of the adversity the hospital still stands committed to the four pillars.

Stretch Our Imagination

Danny Thomas certainly wasn’t the only celebrity to charge down charity lane and he won’t be the last. However, how many celebrities can you name today who are this committed to a cause?

Given tomorrow is a big day, why not use part of it to stretch our imagination and wonder out loud in letters to the editor, community blogs, phone calls to talk shows, etc. to encourage celebrities to imitate Danny Thomas. In these days of multi-million dollar draft picks, big dollar sport contract re-negotiations, record high CD sales and the like, why can’t we start the leverage the celebrity movement.

Celebrities enjoy a status second to none so it would be easy to leverage their celebrity in the face of any problem we have. Most of today’s youth are already hooked on celebrity. They would be the worker bees that keep the movement rolling.

I don’t say any of this tongue and cheek because we are in real serious dookey. I’ll use GM as a proving point. Who owned GM?

If you believed in what our system of economics told you, it was the stockholders. The stockholders were the actual owners because that is how ownership was created by corporations. In fact, the government made corporations follow a certain blueprint through laws and tax codes or they didn’t qualify as a corporation.

As I write this, the stockholders no longer exist. The government has taken their place. It doesn’t make any difference how this happened, because it did.

But what if we had celebrities leading the opposition to the governmental takeover? What if these celebrities stood foursquare with the stock and bond holders?
I bet the new owner wouldn’t be the new owner.

Leveraging Celebrity

Let me repeat myself and say we as a people can solve any problem or crisis as it hits us with the right kind of leadership. This of course begs the question will celebrities be the right kind of leadership?

The answer is a resounding yes if we tie their performance to their celebrity status. Fail and they lose celebrity status. Succeed and they keep celebrity status.

We know celebrity can be leveraged. I wonder if we are willing to do it? Happy 4th of July…

Think the big banks would be at least a little grateful to American taxpayers for bailing them out with their money? Yeah, right!

A published report the other day says these “too big to fail” institutions are doing everything in their taxpayer fueled power to head off a proposal by President Obama for a consumer protection agency.

The proposed agency would, among other things, regulate home loans.

Did I say “regulate?” Now, there’s a word banks don’t like very much.

But regulation was exactly what was needed–stricter regulation–when banks and other lending institutions were helping create the worst economic disaster in this country since the Great Depression.

The New York Times quotes the president of the American Bankers Association as saying, “It’s going to be a huge fight. This agency would have broad powers that go beyond every consumer law that has ever been enacted.”

Well, that sort of sounds like a good thing to me!

The fact is, the banks, and many real estate brokers, have and are getting away with fiscal murder….and, they know it. That is why they are fighting so hard to head off anything that might get in their way of business as usual.

We may or may not be at the very beginning of a modest,at best, real estate recovery—declines in home prices in some places are slowing–and prices actually are up in cities like Denver, apparently.

But lending institutions can’t be allowed to simply pretend that nothing really bad has gone down…that would only set everyone up for yet another real estate bubble followed by another real estate burst.

While the turmoil in the residential real estate markets continues to make headlines, some analysts and prognosticators are questioning whether we will see the same kind of meltdown and mass foreclosures in the commercial real estate side of the industry. And the general consensus of those quoted in various news services and website across the United States is not good.

Overview of Commercial Market Status

The commercial real estate market, including retail malls, multifamily buildings, office buildings and other non-residential buildings has already been hurt by falling prices, unemployment, economic decline and foreclosures. However, as already mentioned, commercial real estate includes many different property types, which perform differently under the same economic conditions. For example, retail malls have been adversely affected by numerous issues such as the credit crisis, lower consumer spending, retail competition from the internet and changing consumer behavior. These economic factors that have already caused the bankruptcy of major malls across the United States may not have the same affect on the multifamily real estate market due to the fact that the demand factors influencing apartment buildings are completely different from those of a retail mall. In fact, some of the issues now hurting retail malls could actually increase demand for affordable multifamily housing.

Can Multifamily Thrive in This Down Market?

Millions of people have seen their homes foreclosed upon over the past two years. These people may not be shopping every weekend at the local mall for a new pair of designer jeans but they will still need a place to call home. With tightening credit guidelines for residential mortgages and falling residential home prices it is a logical presumption that many of these displaced people will be seeking multifamily housing. As most apartment building investors understand, it is difficult to find reliable statistics for multifamily housing demand. This is due to the fact that demand for multifamily housing varies according to local economic factors. For example, demand for multifamily housing may increase or decrease according to the local job market.

One of the factors that does seem to be affecting all property classes in the commercial sector of the real estate market are commercial mortgage backed securities. According to Forbes.com the issuance of commercial mortgage backed securities reached its highest point in 2007. Most of these bonds are for duration of ten years and have a fixed rate of interest. These bonds become due in 2017. While this is true for the majority of large retail commercial projects, many apartment building owners have five year loans that become due in 2010 or 2012. Because of stricter underwriting guidelines and depressed values, these owners may find it difficult to refinance without having to put up more cash to facilitate the loan.

Photo Credit: sashafatcat

With so many ways to make money in real estate, how are you going to choose to make your money?  Investors can make loads of money in residential flips or rehabs or commercial buildings, apartments, self storage, mobile homes, even vacation property.  There are even different ways to profit in each of these asset classes, it just depends on how you wish to exit.

Here is a list of different exit strategies

1. Flip
2. Rent and Flip
3. Rent and Hold
4. Lease Option
5. Wholesale
6. Refinance
7. Sell the entity that holds title to the property

So which one do you choose?  Many investors do not wish to use any of their own money or take any risk and they wholesale deals.  Others flip or rent and hold for positive cash flow even lease option or refinance.  But what if you run into an unpleasant surprise or your exit strategy does not work?

Items that could ruin your exit strategy

1. Tenant issues - a bad tenant trashes the place and does not pay rent
2. Cannot flip - demand does not exist, or escrow falls out because the buyer cannot close, lender backs out of the loan, etc
3. Unexpected maintenance – surprises and maintenance can add up and cancel out profits
4. Poor property management – vacancy, bad tenants and poor operations can diminish value and hurt cash flow
5. Depreciation – the value of a market is out of your control, recently dropped in half in some areas

These are just a few reasons why savvy investors avoid losing money on deals by having multiple exit strategies. If you are unsuccessful flipping a property you may be able to rent, lease option and even get a lower payment or take cash out with a refinance. Or if you cannot find good property management or good tenants then you can flip the property.  Multiple exit strategies give investors backup plans if your 1^st exit is unsuccessful.  Most investors that have done enough deals have run into surprises or exit strategies that did not go as planned.  Avoiding loses is crucial, you may ruin credit, ruin good relationships with investors and integral parts of your team, even end up bankrupt.  Avoiding the valleys will also allow your portfolio to grow more over time.

Simply put, multiple exit strategies will lower risk, not to mention, let you sleep at night. My advice, always have multiple exit strategies.

Almost nobody gets rich quickly in the real estate business. You will probably get rich slowly like most of us. You will make $5,000 off a wholesale deal, $30,000 off the back-end of a lease option, $10,000 from another wholesale deal and $50,000 from a pre-foreclosure. Making this money takes time, but once you get good at this business the money slowly begins to add up.

Have You Caught Fire Yet?

However, there comes certain times throughout your real estate career where you “catch fire”. For one reason or another you will catch fire and you’ll get more deals than you can possibly handle. This happens in spurts and I’ve experienced it multiple times.

Perhaps it will be a call from a landlord who owns 25 houses and wants to dump them all. Or maybe you just sent out a direct mail letter that’s getting an awesome response rate and the leads just pour in.

Now, when this happens guess what? Many investors freeze up. They get so overwhelmed that they do nothing and just bury their heads in the sand. I know this for a fact because I’ve witnessed it with new investors and I’ve had to convince them to snap out of it.

You see, when the floodgates open, this is your chance to get-rich-quick. You never know when you will “cool down” so you need to take advantage of every deal that comes your way. I don’t care if you have to work 80 hours per week and seven days per week. While you have the magic touch you need to milk it for all it’s worth.

Do You Know When to Take a Vacation?

And when I say milk it for everything I mean it. These days I get the majority of my deals from referrals. Often I will get my referrals from people who are too overwhelmed or uneducated and they don’t know how to handle everything or they don’t want to work a little extra to make more money. Just the other day I got a call from an investor who was going on vacation and wanted me to handle some deals for him. Can you believe that? He is passing off thousands of dollars to me at a time when he is “hot” to go on vacation (I know this investor personally and he’s moving and shaking right now).

So what do you do when you “catch fire”? Well, take it one deal at a time and get organized. First, get a folder for each deal that you’re working on. Next, get out your calendar. There are seven days in a week, so that means you could have seven meetings with sellers each week (Yes, seven meetings. You have to temporarily sacrifice now, if you want the good life in the future). Also, if you don’t understand a deal don’t forget to call upon your network of more experienced investors to help you out (I wouldn’t try and involve them in the deals, just pick their brains for information).

Don’t Squander Opportunities

Listen: I don’t know how many other ways I can say it. But when you get in the groove, don’t let anything stop you. You might close 15 deals in two months and then it could be another three months until you get your next deal. And that’s when you take your vacation or relax…when things are slow.

I guess it just ticks me off to see people squander opportunities, or to be too lazy to take advantage of them. So, when your “hot period” happens just roll with it, with everything you got. And don’t be stupid and take a vacation, or cancel a meeting with a seller because it’s your bowling league night…

No fewer than three times in the past week I heard someone use the expression “when life hands you a lemon, make lemonade.” Twice it was used in the context of real estate and the other in reference to the economy in general. What that says to me is that people have, for the most part, come to the realization that things will never return to the way they were.

image via Flikr

 Last week I discussed revisiting your business plan, getting back to basics, and remembering why you went into this business in the first place (article). Often that is easier said than done. Everyone understands that there are going to be setbacks, or lemons, along the way. But now it seems as if the lemon harvest has been a bumper crop. How much lemonade can we drink?

The Carnegie Solution

I remember reading a book by Dale Carnegie many years ago. He had a fairly simple process for dealing with problems and it’s one that I’ve always remembered. He suggested following three simple steps:

1. Determine the worst possible outcome
2. Accept that outcome if necessary
3. Take steps to improve on the worst case

People have a tendency to let things get out of hand by ignoring problems altogether. The worry and stress impacts every area of your life including your business, family life and your health. Stress takes an enormous toll and there is certainly no shortage of it today.

Facing Trouble Head On

Let’s look at a typical problem facing real estate investors. Tyler Tycoon gets caught up in the buying frenzy of a few years ago. He purchases an investment property in 2005 using an Option ARM and very little money down. He rents the property for enough to cover the teaser rate on the loan with very little left over to cover other expenses. He isn’t worried because prices are appreciating rapidly and he was assured that he would easily be able to refinance into a better loan before the teaser rate resets and caused the payments to jump by 50%. What could go wrong?

It’s now 2009 and prices have dropped significantly from the purchase price. Worse yet, the teaser rate is about to reset to a rate that will cause the payment to jump to a point that puts the payment much higher than the rental income, never mind the other expenses. Tyler has no reserves and is faced with foreclosure and is considering just walking away from the property.

Using the three step process:

1. The worst case is that he loses the home to foreclosure and the lender obtains a deficiency judgement forcing him to declare bankruptcy. His credit is now ruined for ten years as a result of the bankruptcy.
2. Instead of worrying about it, accept that this could very well happen and mentally prepare for it.
3. Look for ways that will improve the situation. You may not be able to solve the problem but you may be able to lessen the impact. Perhaps a short sale or modification of the loan or a deed in lieu of foreclosure with an agreement that there will be no deficiency judgement.

Ignoring problems won’t make them go away but it can make them worse. Those who prefer to cry over spilt milk will, no doubt, be signing the blues for a long time to come. Those who choose to make lemonade out of life’s lemons will wind up whistling a happier tune.

“When we have accepted the worst, we have nothing more to lose. And that automatically means- we have everything to gain!” - Dale Carnegie