FAST Nickels vs. SLOW Dimes: As a Real Estate Investor, Which is Better?
It seems that I have found myself having the same discussion with many small business owners, especially my personal real estate clients, as of late. I have found myself posing this question to all of them:
At this moment in time, with both the knowns and unknowns regarding our economy, the general credit markets, and mortgage availability and underwriting specifically — is it better to take the best deal now, even it means you take less profit or hold out for greater profits?
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In essence, we’re talking about taking Fast Nickels over Slow Dimes.
I first heard this phrase from the individual I engaged to mentor me when I first got started in real estate. While that relationship didn’t last too long – you can read about how I fired him here – at the time I just couldn’t get my mind around his statement, and as a result this mentor lost a lot of credibility in my eyes.
You see, I am sure I am like many of you. I WANT DIMES. I wasn’t in business to chase a bunch of nickels. To make less on my deals or take less in rents then what I believed was possible . . . that was just not going to happen. I just couldn’t fathom anyone accepting that less was better.
OH… What Eleven Years of Experience Will Teach You!
After literally hundreds of deals and offering insight and advise to others on hundreds more, I have learned that in almost every case Fast Nickels are indeed far superior to Slow Dimes.
Let me explain via a series of real life examples:
1. A comment made by Joel Owens, to a recent Bigger Pockets article I wrote (see comments here) drives this point home. Joel made the following suggestion, “make sure your rent is not top of the market so that you can screen the most apps for the best tenants.” Joel gets it. It is more important to secure the “fast nickel” by lowering your rents thereby increasing your pool of tenants so that you can select the best tenant from a large pool. Joel, whether he knows it or not, is very happy with Fast Nickels, and I am sure his cashflow reflects his approach.
2. Another individual I am working with found himself in an investment, not real estate related, whose payout was constantly being delayed. Of course the longer any business deal takes to get completed the greater the danger of it not being completed at all. This investor was recently informed that they could get their principle back and receive approximately 16 cents on the dollar if they cash-out now (yes this was a high risk, high potential payoff investment). I found myself providing this counsel: TAKE THE MONEY AND RUN. In other words, be very happy with the “fast nickel” because to wait for the slow dime at this time drove the risks beyond his ability to mitigate them. And he is going for that FAST NICKEL!
3. How about the recent offer to purchase a property that I am joint venturing on? Imagine in today’s market getting multiple offers, including one with an escalation clause (brings back memories of 2005). Essentially both offers are strong, they both have their quirks, but all are manageable. The key difference with these offers are this:
One offer would bring in around $3500 more in net profit, but close of escrow would not occur until late July. The other offer would of course net $3500 less in profit, but the buyer wants to close at the end of June. How do you think that conversation went? If you said that I recommended taking the shortest close date, essentially accepting Fast Nickels vs. slow dimes, you would be correct. My thinking being that with a 30 day close, everyone is motivated to get this deal done, and if it should fall apart at the last-minute as some deals are prone to do, we will know within 30 days or less and get the property back on the market prior to the August sales doldrums. With the other deal, if it falls apart we most likely would not know until late July – YUCK!
Fast Nickels vs. Slow Dimes
How do you approach this topic? Are you always in it for the most possible profit regardless of how long it takes for you realize it, or are you content to get in and get out — claim your profit and move-on to the next deal?
Before you answer that, let me mention one other item about chasing Fast Nickels…
Money loves velocity – the quicker you get to your exit strategy with your deals, the more velocity the funds you are using will have, and it always seems that once you get money moving fast, more of it always shows up!
See… even money thinks you should be chasing Fast Nickels…
Photo: Sarah Reid