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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Tags: immigration, opportunity, real estate, United States

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.

Tags: Depreciation, lease option, Mobile home, real estate, real estate investing

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…

Tags: real estate, real estate investing, Real Estate Investing, Response rate

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

Tags: Dale Carnegie, Deed in lieu of foreclosure, real estate

Remember those days when you had the first ideas for your real estate business? For some that seems like eons ago while others may just now be in the beginning stages of their business. For many those ideas never escape the confines of the cranium and some will scribble ideas on a napkin as they sit at their favorite watering hole. Hopefully those plans eventually made it to paper or, better yet, became a formal business plan.

Unfortunately for many, those plans that were so carefully crafted are soon forgotten. The mission statement, goals and objectives, strategy and such are collecting dust somewhere. Unless it is needed for some proposal or financing it is never looked at again. What happened?

Reality Strikes

People will often start out methodically following the steps in their business plan. They begin with the ultimate goal in mind and set off on the journey to realize their dreams. If they are committed to their goals they keep going while experiencing the ups and downs and challenges that come their way. Things move along as expected for a time but soon enough something happens. Reality enters the picture.

Somewhere along the line we seem to go from the relentless pursuit of our goals to putting out the little fires that pop up at every turn. Those fires are simply the reality of everyday life. They have always been there and will always be pulling you away from your intended path. In the recent real estate environment those fires have been roaring blazes. Foreclosures, falling prices, and difficult to obtain credit have wreaked havoc with business plans everywhere. What now batman?

Reevaluate & Revise

A good business plan is not a static document, it is a living, breathing organism. As such it needs to be nurtured, fed and cared for. If you have a written business plan, take it out and look at it. Have your goals and objectives changed? Odds are that your strategy has, have you adapted your strategy to fit today’s reality? If you haven’t put a plan to paper what are you waiting for?

A typical plan has the following elements:

• Mission Statement
• Executive Summary
• Goals & Objective
• Market Analysis
• Strategy
• Financials

Without a doubt the most important step is taking those elements and implementing them. If you don’t put the plan into action it’s just a bunch of wasted ink and dead trees.

You’ve got to be very careful if you don’t know where you’re going, because you might not get there. - Yogi Berra

Tags: business plan, real estate

Today is Father’s Day, which gives me a minute to put it all in perspective for myself, and hopefully anyone else reading this. Fathers Day is an important holiday, not because we celebrate the men who have played a role in raising us, or because our families celebrate us, but because it is all about family, period.

The reason we fight through the rat race, work hard, invest, etc. is so we can have the resources to take care of our families (at least most of us, anyways). What I’ve noticed over the past several years is that, while technology has come in to help us all connect with one another, the same technology is doing a bit of tearing us apart. Instead of spending time with our families after work, we jump on the ‘net and socialize with our virtual friends. Instead of sitting around the TV (not a great activity, but one where people can, in fact be “together”) as families, we break apart and go to our individual computers, phones, or games and isolate ourselves.

It’s not just tech that is to blame . . .

We also get caught up in work and the fight to be successful. I’ll argue that in doing so, we’re missing out on the real success — having time to spend with those who we care about and who care about us.

Setting Priorities

I made a conscious decision many years ago, that my family would ALWAYS come first. Work, friends, socializing, etc. would have to take a back seat to spending time with my family. While an admirable goal, it has absolutely had a negative impact on my business and success.

Guess what?

I don’t care!

What I’ve discovered is that success isn’t important if you don’t have anyone to share it with. I know a lot of people who are quite successful financially, or in their careers, but that is all they have. They are often lonely, sad people. The part of their lives that is missing is the quality time spent with a loving family.

Coming Full Circle

I’m sure you’re all wondering why I’m going off about family on this real estate blog, so I’ll tell you. Being successful in real estate is completely meaningless if we can’t share the success with those that we love. I know many of you who are workaholics, and who feel like they can’t ever take a minute off, but that just isn’t true.

Stop and breathe. Take some time away from chasing the dream to experience the real dream - a happy life with those who care about you. Real estate and everything else can wait.

Happy Father’s Day!

Photo Credit: AirBeagle

Tags: Father's Day, real estate

I have grape vines, apple trees, blueberry bushes and strawberries in my backyard garden, but my favorites are the strawberries. They are so easy to manage! They don’t require weeding, pruning, or spraying. They don’t get wiped out by high winds. They spread naturally without need for additional planting (put in 25 strawberry plants one year and you’ll have 100 the next). In fact, strawberries are so hardy and prolific they are basically weeds themselves. They are “weeds with fruit.”

“Weeds with fruit” strikes me as an excellent business model for almost anyone to follow. The basic idea is to create a business that, as far as possible, takes care of itself – the “fruit” being money.

It’s not as easy as it looks!

A business that really completely took care of itself and paid you is the economic equivalent of a perpetual motion machine – miraculous, and impossible. We’ve all seen BS web sites like “Ed’s Cash Money Blog” and “Joe’s Magical Money Machine.” Their promises are nonsense. You always have to work. However, there are two kinds of work – the work of building a system and the work within the system.

Let me return to the strawberry analogy for a moment. A strawberry plant is a remarkably complex system. It has codes within its DNA that tell it how to get nutrients from soil, absorb moisture, convert sunlight to energy to grow, and so on. It knows how to shoot out runners to create new plants. It knows when and how to produce flowers, how to grow strawberries out of those flowers, and how to ripen the strawberries.

Strawberry plants, like all other forms of life, have a single purpose – make more copies of themselves.  But the system that makes that happen took a lot of work (what did the work, God or evolution, I’m not prepared to say).

Similarly, we can reduce our workload without reducing our income by developing automated systems.

Some examples from the rental property world

Our companies are always going to take more day-to-day management than others.  For example, last week I was replacing a bathroom ceiling fan in an apartment.  We won’t see an automated system to do that (dirty, neck-straining, frustrating) job until Isaac Asimov’s positronic robots are a reality.  But there are some jobs that can be automated.  Generally they concern organization, tenant communication, and rent collection.

We can either buy or build systems that help us be more organized.  Unless we have many enterprises that we want to manage under the same systems, these should be as rental-property-specific as possible.  For example, we want a system to manage our bookkeeping.  It would be much better if that system took special care of the bookkeeping tasks that relate to landlording.

How about automating systems for collecting each month’s rent payments?  A perfect system would make it very simple for us to record those payments, or even record and receive the payments themselves (if paid through credit card or ACH transfer).  It would calculate late payment fees and other fees for us.  It would notify the tenants by email if they hadn’t paid on time.  It would certainly create, or let us create with a minimum of effort, reports showing each tenant’s payment status.

When a tenant’s lease term was due to expire, the system could notify us and give us the option to send a notice to the tenant offering him a chance to renew – or informing him that he would not be allowed to renew.  If an apartment became vacant, the system could automatically post ads for it on compatible web sites.

The human factor

Reading this, you might think, “Boy, he’s in for a world of trouble.”  Suppose my automated system tells a tenant he is eligible to renew his lease, though I don’t want him to stay?  What if legal issues require such notifications to be made by regular mail?

A completely automated system is completely out of the question.  You, the owner of the building or the company, must be the final decision maker.  (Strawberry growers need to decide where to plant, when to harvest, and which strawberries are good enough to eat or sell.  The plants won’t make those decisions for them.)

A really good automated system won’t make decisions for you, but it will make those decisions easier by presenting you with the information you need, when you need it, and giving you simple and clear choices.  Perhaps you get an alert – “Tenant Joe Smith is three days behind on rent.  Send reminder notice?”

Don’t wait for perfection, but keep striving

As you might guess, I’m working hard myself to automate my systems; in particular, my property management software.  This benefits me in two ways.  First, as my software becomes better, more people will use it (and pay me!).  Second, since I use it myself, it will become easier for me to handle many of the tasks associated with property management.

It would be wonderful if my system was already perfect, but it’s not.  It is constantly improving.  And I cannot afford to wait for a perfect system.  For one reason, I’m building the thing myself, so “waiting” is just not an option.  For another, I have to have something to use now.  The rents need to be collected, tenants need to be contacted, and so on.  Now.

It is always a tricky challenge to divide your time appropriately.  Some of your time needs to be spent doing your daily tasks.  Some needs to be spent making your systems better.  When your systems are better, the daily tasks will be easier.  At least, that’s the idea.

Tags: business model, landlord, property management, real estate