All Forum Posts by: Austin Fruechting

@Mike Flora & @Steve DellaPelle  - glad you guys like it! I had been trying to stress to people the importance of asking and knowing why behind everything as opposed to just just wanting someone to tell them the answer. From expense ratios to general investing strategies and everything in between. I just came up with the analogy recently to help drive it home and for people to (hopefully) understand the importance. 

I get asked questions from new and aspiring investors all the time. All too often, they go something like this: What’s the best thing to invest in? I have $xx,xxx, how should I start?

Hey, I’m flattered. I’m flattered that you have seen what I’ve done and want to replicate it. I want you to be a successful investor and want to help where I can. But those questions aren’t going to get you there.

WHAT’S THE BEST PLAY IN FOOTBALL?

Think about it like this; would you ask Bill Belichick (five-time Super Bowl champ coach) “I want to be good at football. What’s the best play to run?”

That is an absurd question! There is no single best play in football. Are you on offense or defense? What down is it? How many yards to go? Where are you at on the field? How much time is left in the game? How many time outs do you have? Are you ahead or behind? What are your team’s strengths? What are your weaknesses? Who are the strongest players on the field? Who are you playing? What are their strengths and weaknesses? How do you match up with them?

Every situation is different. What is right in one instant, for one team, in one set of conditions could be a completely wrong play for another team with a completely different matchup.

But when it comes to real estate investing, wannabe investors often ask the equivalent of “What’s the best play?” They want someone to tell them exactly what to do and when to do it. It just doesn’t work like that. What is right for one investor, in one set of conditions, could completely wrong for another investor.

THE “OBVIOUS” PLAYS

There are times in football that the right play is super obvious… but even the obvious plays are not as straightforward as they may seem.

For example; it’s 4th & 15, you have the ball 70 yards from the end zone in the first quarter. What’s the best play? Well, clearly you punt. Super straightforward. Easy-peasy right? Well, not really…

How deep can your punter kick? How good is their returner? Their blockers? Your coverage? Sometimes the right decision is to angle the punt to the sideline and not give them a chance of a return. Under different circumstances, the best play is to kick it as deep as possible to pin the other team back. Even something as obvious as “you punt the ball” is more nuanced than it seems on the surface.

Compound that with the fact that even when you put all the variables together, nearly every situation has multiple plays that are reasonable calls to make. Say it’s the very beginning of the game, you received the opening kickoff and it’s 1st & 10 at the 25. What’s the right play to run?

It’s the same thing in real estate. There is a lot of nuance to every specific situation. Even something that seems to be an obvious investment “play” isn’t as straightforward as it seems. And there are often multiple investment plays that could all be “right”. The right answer depends on such a multitude of variables and circumstances that unique to each individual at that point in time…

What are your specific goals? How much do you have saved to invest? How much can you save monthly? What’s your credit score? Where do you live? What does that market offer? How strong is the market at that time? How demanding is your day job? Do you like your day job or do you want to leave it as soon as possible? What are your strengths? What are your weaknesses? Are you going to self-manage? Are you a handy person? What’s your risk tolerance?

SUCCESSFUL COACHES AND INVESTORS

High level, winning coaches don’t achieve success by just learning a few great plays – no matter how thick their playbook. Great coaches understand how all the variables work together and, in an instant, analyze them all to make the right call. They learn the theory and mechanics of the game. They dig in to understand all the variables at play and why they should run a particular play at a particular time. Winning coaches know when a certain play is the right play and when it’s the wrong play based on all the variables of their unique current conditions.

If you want to achieve a high level of success as an investor you must spend the time to learn the concepts and theories. You need to understand WHY a certain strategy or investment may or may not be the right thing for you given your current situation. Trying to run every play in the exact same way, and in the exact same order another successful investor did them in is not how you will become a successful real estate investor.

I wasn’t this successful in real estate by running someone else’s playbook. My success came because I spent time to learn the WHY behind everything. I knew why the decisions and investments I made were right for me at the current time given all the variables at play at that time. But your individual circumstances are going to completely different than mine.

THE TRAINED MIND

Instead of asking me “Should I flip properties or buy rentals?” Study the pros and cons of flips versus rentals. Determine the pros and cons. See how it fits in to your life, your goals, your circumstances, your market, the current economics, etc. Study what makes a “good” flip and a “good” rental return. Assess properties in your chosen market to see if either has potential. Maybe the right decision is flips, maybe it’s rentals, or maybe it’s both.

Instead of asking me “Should I partner with someone? Where should I start looking? What percentage should I use for this expense? When exactly did you do <fill in random milestone here> in your career? When should I do…? What should I…?” ask yourself WHY for everything. Study and understand the concepts and theories. Understand the pros and cons. Seek an understanding of the concepts and theories. Dig in to understand all the variables at play and why you should run a particular play at a particular time.

A trained mind is better than any script.

@Thea Linkfield - have you implemented the miracle morning? Reading it does you nothing. But when you start the day by doing it (or a version of it), and do it consistently, that’s when you’ll notice change. 

I’m restarting and getting back on track. Today is day 1. I did it for a month, then didn’t do it for the past month or so because of a lot of travel, and laziness when I wasn’t traveling. The difference of what I get done is crazy. Every aspect of my life was better, personal and professional, when I start every day in the right way. It takes a bit to really click, but I noticed differences from the beginning. 

“The first hour of the morning is the rudder of the day.” 

Hi @Thea Linkfield 

Fellow ADD guy here. Stopping tasks at 80-90% completion and leaving them there is a big one for me.

You are ABSOLUTELY correct that The Morning Miracle is an amazing start. I just got the book a few months ago and wow! When I start the day with that structure and focus, it definitely helps keep it rolling all day. 

@Seetha G has a good one there two with The One Thing. I'd say read that book after The Morning Miracle. Reading is part of TMM, so that would be a good one first book for the new morning routine. 

The Power of Habit is also great. Toss up between that and The One Thing in my opinion. 

And Extreme Ownership could be a good one after those. Not as much about focus/habits, but just about taking full ownership of everything that happens in your life. 

In January I bought a new truck (Tundra TRD Pro) and have been outfitting it for an overland rig (essentially an off-roading capable mini RV). Since we hit financial freedom and neither myself or my wife have to work now, we'll travel around in that. The rooftop tent is the last thing for it and it'll be here in a week or two. I had never bought myself a vehicle with less than 100k miles on it. When I got it I had a jetta wagon with 190k miles on it and an F150 with 203k miles. Until we reached financial freedom, I wasn't going to spend much on a vehicle because that would have just been money not going back in to real estate. 

I'm having a very modern custom cabinet humidor being built right now that will be about $12k. I'm big into cigars and wanted one with temperature control, but didn't like the looks of the others available. It's the same size as the one I have now (6ft tall x 4ft wide), but the one I have now isn't actually a humidor, just a cabinet I got on craigslist for $250 and another $250 to turn it into a working humidor. Earlier this year I "flipped" a duplex to myself. Bought it from a wholesaler, fixed it up, rented it out, and refinanced it for $15k more than I had in it. So not only is it paying for my humidor and many boxes of cigars, the ongoing cashflow will continue to keep it stocked. 

Nicely done @Brian Adams !!

Banks that are portfolio lenders are often willing to refinance without the seasoning period on smaller properties. 

@Amir M. - Rich Dad Poor Dad is what got me started. Not sure where I'd be if I never read that book. 

Our rentals (156 units) support our lifestyle. I wouldn't say I'm pursuing real estate investing full time. My full time is just whatever I want to do. I look for some deals and enjoy putting together a deal so I spend some time doing that if there's anything of interest. Other than that only I spend about an hour a week on real estate to maintain the books and answer questions from the property managers. 

Carrying costs are certainly something to consider, but probably the smaller portion of what you need reserves for. If your tenant moves out and it needs all new flooring, repainted, and other updates how much does that cost? You need at least that plus the carrying costs for the time it takes to do the work and hold until you get a new tenant in. What if the HVAC goes out around that time too? Or any number of other things. 

Just using a certain amount of months of carrying costs doesn't make for a great calculation of a cash reserve (just as you shouldn't plug in a % of rent for repairs/capex). What if it's a property you got at a steal so your mortgage is low? Or paid off? Say your monthly carry costs are $500 or less. Is 12 months of that ($6k) a good reserve? Of course not! That HVAC is going to cost you $4-5k wether your carrying costs are $500 or $1500. If you have other repairs and vacancy there your "12 months of reserves" doesn't get the work done and you're sunk.  

Let's say a long term tenant moves out. It sits vacant for 3 months to complete work and get a new tenant. Carry costs $500 a month x 12 = $6k reserve. New flooring; $3000.. paint whole house; $2000.. HVAC: $5000.. Miscellaneous repairs; $1000.. small bathroom update; $1000.. TOTAL WORK: $12,000.. carry costs; $1500.. Total: $13,500.... your 12 months of carry costs don't even cover half of it.

The carrying costs is only one part of the equation for your cash reserve needs.