All Forum Posts by: Vikram C.

Jason, it was not my intention to attack you at all. I was, clumsily, trying to say that I value your posts in general but not on this subject and my disagreement with you on this subject is not a reflection of my general view of you or your posts.

Regarding running multiple businesses, I think you have to take my sentence in the context of this thread and everything else I have said in this and the other thread. I fully endorse strategic flexibility and profit-maximization.

I suspect we have both said enough on this subject for readers to know our position and continuing this discussion will waste everyone's time.

Mike, this is a good point and one I would like to address. I regard the goal of a business as value-maximization. If I owned stock in a company and management was not focused on maximizing shareholder value, I would want to see them fired. Similarly, in my business, I focus exclusively on value-maximization. Otherwise, I should fire myself and replace me with someone who can get the job done. My advice is based on this perspective - thinking of the RE investor's business as a real business with the goals that one would have for it if it were a professionally managed one. If you have other personal goals, then by all means go for it - I cannot really advice someone on what they should do to personally satisfy them. However, I can say that a professionally managed flipping business can be less hands on than a poorly managed buy-and-hold business. The nature of a business and the degree of management it needs are not really related once you scale the business to a meaningful size.

That's not what I am saying at all. Windows does not present good reinvestment opportunities because of the huge amount of cash it generates and therefore the profit-maximizing decision has to be to deploy it in other profitable ventures or return the money to shareholders.

The subject of this thread is quite the opposite. It has to do with decision-making with constrained resources. How do you deploy capital with limited resources? The answer is that you should deploy it in the activity that gives you the best returns.

Bryan, whenever I refer to ROIs, I have meant risk-adjusted ROIs. I would never try to maximize pure ROI without factoring in the riskiness of the activity. Thanks for asking the question so that I am able to clarify this in case any newbie reads my posts and follows my advice. I am a very conservative investor by nature and am quite careful about the types of risks I take and generally do not like bankruptcy risk very much. :)

Jason, you are reading the business histories backwards. Gates did not start Microsoft by trying to succeed at Windows, Office, Zune, etc. Had he done that, he would have been one more failed businessman that nobody knows about. Instead, he started with one thing, made it the dominant product in its market, found that he had excess cash flow that could not be reinvested back into the business at the same ROIs, and started deploying the cash into other potentially profitable businesses. I fully endorse such strategic flexibility and ROI-maximizing decisions.

That would be similar to a flipper who expands nationwide and perhaps worldwide, finds that he is so successful that he is unable to reinvest the proceeds back into the flipping business at an adequate ROI, and then decides to do other things with the cash such as buy-and-hold. I fully support such strategic expansions because they are genuinely ROI-maximizing decisions.

Jason, you are also mistaken in thinking of flipping and buy-and-hold as the same thing with different exit strategies. They are actually very different at the acquisition and rehab phases as well. When I buy a property to flip, I look at the ARV, the holding period, the rehab costs, etc. I do not look at vacancy rates, rents, demographic and economic trends in the city, etc. My flips have so far been quite successful but would have made lousy buy-and-hold investments. Had I tried to accomplish both possible exits, I would have ended up with suboptimal flips because I would have been distracted by the buy-and-hold analysis, which would have imposed an artificial constraint on my flips.

Jason, as you know, I consider you one of the most valuable contributors to this site and the best poster on rehabbing and flipping. But business strategy is apparently not your strong suit while it is mine. I believe the OP will be much better-served following my advice than yours. In any event, readers have been given two well-presented viewpoints and can decide which route to take in their businesses.

Steve, when I was chatting with my lawyer about usury laws, he said that they no longer apply throughout the country except for people who are not represented by a lawyer and do not know what they are doing. As Eric has mentioned, there are so many ways around the usury laws these days that the only people who get caught in the net are people who do not know what they are doing. So don't worry about usury and just make sure that your first few deals are vetted by a competent attorney.

Bryan, you will see my point within your answer. You have mentioned in your example that fix and flips generate buckets of cash - meaning high ROIs and a short holding period, I assume. I have read similar posts on BP in the past, where people want to generate cash from flips and then invest it in buy-and-hold assets. And I have always wondered at their thinking because it is really quite suboptimal.

Let us take some numbers to make this easier to understand. Suppose your fix and flips generate you 80% annualized ROI after taxes. And suppose your buy-and-holds generate 30% annualized ROIs. Why on earth would you put the cash generated by your fix and flips into a buy-and-hold instead of putting it back into more fix and flips? You would have double the money from the fix and flips within 4-5 years compared to doing the half-and-half approach. You will probably also be a better flipper if you focus exclusively on that because you will not let your decisions be clouded with alternative exits.

BTW, I am not advocating that everyone be a flipper. I am just suggesting that everyone should figure out what strategy works best for them and execute that strategy well instead of trying to do a bit of this and a bit of that. The latter approach, in my opinion, is amateurish and suboptimal. You will be hard-pressed to find many great investors who have taken such an approach with much success, whereas you will find that the vast majority of great wealth has been accumulated by people who have focused on and excelled at one thing.

I am the one who advocated the focused strategy, so here's my reasoning:

In RE, as in any other investing, you can either be a professional or you can be a hobbyist / part-timer doing some deals on the side. For example, you may be a doctor who has some extra cash and decide to use it to buy a property and rent it out. My advice is not meant for such people because those are not economic optimizers.

For the rest of us on BP who want to be hugely successful, I would recommend that you do not get distracted into doing multiple strategies. Instead, you need to evaluate your options based on your interest and ability. Once you evaluate your options, you will find that there is one strategy that is optimally suited to you and provides you with the best returns given your skills and resources. At that point, I recommend that you focus on that one strategy and execute it as well as you can and scale it up into something sizeable.

I also believe that strategic flexibility is important. A strategy that works today may not work in ten years. You will need to adapt to changing marketing conditions over time. But strategic flexibility is not the same as strategic confusion, which is what was advocated by most people in the other thread. I think strategic confusion is a suboptimal strategy both in the short run and in the long run.

A 50-50 split is a great way to get started. Once you have a strong track record, you will be able to offer a smaller percentage and still offer an outstanding return to your investors.

Bryan, I want to clarify that I am not advocating that everybody be a flipper. I think each person should determine the investment strategy that is optimal for that person given his personality, time and talent. And then focus on that one thing like a laser and execute it to the best of his abilities. They key to great wealth is focus.