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Successful Investing while Holding a Full Time Job – Key #5: Focusing on Leverage

by Michael Zuber on April 23, 2012 · 4 comments

  
leverage real estate

By completing the previous Key to Successful Real Estate Investing while Working Full Time you should have a good understanding of what is “Core” to your business and what is “Context”. Remember “Context” should be outsourced to other team members and “Core” are items you complete.

With this you now have some things to focus on and at the top of this list is Leverage.

Leverage Time, Dollars and Equity as you build and run your business.

Given that you work full time, leveraging your time both effectively and efficiently is Key as available time is a scarce resource. However, the real trick is to get good at leveraging other resources or team members’ time. If you can find multiple ways to leverage team members time you will see your business explode with positive growth.

Let me give you a couple of examples that work in our business:

As you know we are buy and hold investors in a California market. We pride ourselves in turning ugly and distressed properties into quality rentals. However, given we work crazy hours and travel all the time it is very hard to find these properties before they get bid up or scooped up by local investors who follow the same model.

That is exactly why we listened to Tony Alvarez (Our Mentor) and learned how to work with real estate agents in our market. We spend lots of time leveraging our relationships and helping those agents sell problem properties. By working with agents and getting them to trust us as closers of tough properties, we get the phone calls when other deals fall apart.

Lots of investors will pay more for properties as we don’t get in bidding wars; additionally, we close 100% of the deals we get in escrow. Thus, on occasion we get a call from an agent about a flaky buyer or problem property. By earning the trust of these agents we can pick up some nice properties because we will close if we get the deal in escrow; of course, closing is more important than a couple of extra bucks to many agents.

Leveraging your financial resources is also key, because we want our dollars working for us as hard as possible. If you simply spend your resources and then sit back and wait you will have a slow road.

I suggest a better approach is to investigate every avenue you have to leverage your dollars. Perhaps you can find away to recycle your hard earned capital. Perhaps you can find away to leverage past 401K’s by converting to Self-Directed IRA’s? Perhaps you can find a way to leverage dollars via VA foreclosures or other like-financing options.

The final area to get focused on, is leveraging equity as the market changes over the years. You may not get a chance to use this tip for a few years, but the ability to leverage equity will be key to accelerating your business.

In our business we leverage our equity in several ways. First we did cash out refinancing when it was possible before the crash. Second and more powerful for us was when single family homes made no business sense, we sold them and did 1031 Exchanges into small apartment buildings. This exchange allowed us to leverage our equity into a lot more cash flowing rental properties. 

In addition we created a business model that allows us to buy distressed assets for cash, repair the asset and then via passive investors, extract a portion of our equity by offering a 10% interest-only note and first deed of trust on the now repaired and leased property.  This model works very well for us in today’s market as intrest paid on savings is very low. 

Our passive investors love the return, the security, and the fact that they get a chance to participate in the Real Estate Market without taking the risks of active investing or having to invest all the time in learning the market.

Now I admit that cash out refinancing and selling properties via a 1031 Exchange today are not great options, but over time they will be, and you need to be ready for it. As the market changes and the press picks up on the fact we have hit the bottom in the market, real estate will come back in vogue and you need to be ready to leverage your equity.

Have you noticed lately that at least 75% of the press on real estate is positive the last 6-8 weeks? When the market changes from a buyers market to a sellers market we will be ready to exchange all of our houses for small apartment buildings again. It is a very profitable strategy.

In the end the fifth key is about getting good at leveraging Time, Dollars and Equity to insure maximum return to your business.

Next week we will close out the series with Key #6

Good Investing

Photo: stevendepolo

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{ 4 comments… read them below or add one }

Tod R April 23, 2012 at 2:36 pm

Thanks Michael, I’m enjoying the series.

Do you see your SF market turning to a sellers market within the next 12 months?

Tod

Reply

Mike Z April 23, 2012 at 4:49 pm

Tod R,

I don’t invest in the SF Market but given I live in the SF Market I can give you my 2 cents. First the silicon valley job market is pretty hot and we have a lot of IPO money just about to come off the sidelines so yes I expect the SF market to be a sellers market with in the next 12-18 months. Just one guys opinion but remember I don’t invest in the SF Market so I could be completely wrong

Good Investing

Reply

gordon April 23, 2012 at 5:19 pm

It is a sellers market in the Sacramento CA area. We only have a 1.3 months supply of homes for sale. Our inventory has declined by 60% in the last 15 months. We saw our first median price increase last month since 2010 when the tax credit expired. Many properties under the 100k range are getting multiple offers. It is tough to get a house that needs rehabing because they get so many offers. If a person is looking for a home to buy in Sacramento, they can go to
http://www.thesacramentohomes.com/. I wish I could find someone who wants to sell because it would be very easy to sell a home right now.

Reply

Mike Z April 23, 2012 at 8:06 pm

Gordon

Things could be getting fun

Good Investing

Reply

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