Saturday, October 26, 2019
So you are not a salesman (or saleswoman). You buy houses. You fix them up. You rent them. You sell them. Oops, there is that word. You may list them with a realtor or have someone in your organization that handles that part of the business. Business? No, you are an investor or a rehabber or an acquistionist or whatever, BUT you are not a salesman. You don't wear a plaid sport coat and wear a pork pie hat. These days you may not even own a sport coat or a business suit – especially here on Florida's west coast.
Are you sure? If you ever went on a date, how did you get the girl or guy to go out with you? If you ever, heaven forbid, had a job, how did you get the boss to hire you? Did you ever get a car salesman, they guy in the plaid sport coat and pork pie hat, to give you a little more for your trade in or lower the price a little? If you are too young to know what a pork pie hat is, you can see them here. More to the point of what we are discussing here, did you ever get someone to sell you their house, land or mobile home at a price where you could make some money? If the answer to this last question is 'no”, then you really need to pal close attention here.
Think about it. If you ever went on a date, you sold the fellow or girl on the idea of going out with you. If you had a job, you sold the company on the idea that you could do valuable work for the company. If you got a good deal on a car, you had to do some selling to the dealer – or perhaps he just did an excellent job on you. If you ever bought a distressed house you sold the owner on the idea that they should deal with you rather than the flock of other vultures circling their property – true or not, that is the way many seller see investors.
So now that we've knocked the pride out of the high horse position of looking down at mere salesmen you might expect that I have all the answers and techniques to turn you into super salesman or super investor. In the interest of truth, justice and the American way I have to confess that I am not the one to convey the intricacies of the sales process to the experienced investor or even the novice. However I'm better than I once was but not as good as I am going to be.
With practice I got better but instead of practice making perfect, practice makes habits permanent. So practicing doing the right things is the key. Persistence is good, but persisting in things that don't work leads to the very definition of insanity – that is doing the same thing over and over while expecting different results.
So where to you go to get better at this trade? The first thing to do is to get to know people that are doing what you want to do. Start hanging out with them, watch what they do and ask questions. Don't be obnoxious or they won't be much help. You can also pay thousands of dollars and sometimes you will get mentoring well worth the cost. Other times you will spend thousands of dollars. If you can, find local investor groups to get to know what is actually happening in your area.
Beyond this, reading a book or two now and then can be very helpful. I have several that I like. You may find others but here are a few to consider.
Many years ago I came across a book by Tom Hopkins called How to Master the Art of Selling. I'm not sure if that book is still available, but he has others that help to understand the process of moving a person from the interest in a product or service to talking action on that interest. He also talks about patience and maintaining a positive attitude.
While we work with houses, condos and land, we are always dealing with people. In that area, almost anything by John Maxwell will help with personal growth and relationships. Along with his books, John does regular seminars that are well worth the time and effort to attend. As it happens the more capable and confident you are as a person, the more capable and confident you will be as an investor.
Most recently I have come across a book titled Never Split the Difference by Chris Voss. As we move forward in our knowledge and methods of analysis, our sales and negotiating techniques evolve as well. Chis is a former FBI hostage negotiator who worked with stakes much higher than getting a good deal on that nice 3/2/2 on the corner lot. Among his more interesting concepts is that we should set aside the “golden rule” idea of treating people like we would like to be treated. Everyone is not like you or me. We need to treat people the way they want to be treated... and he describes how figure it out. He talks about high anchors and low anchors and how something as simple as splitting the difference can mean giving away the store.
And last, whatever you believe politically, you can learn an awful lot about the mindset for real estate and life from the Art of the Deal by Donald Trump.
So work your business, and associate with people doing what you want to be doing – whether in person or on the pages of a good book.
Sunday, October 20, 2019
Last night I watched a beautiful exercise in determination as the Astro's second baseman, Jose Altuve... all 5 ft 6 in Jose Altuve faced Yankee closer Aroldis Chapman. When Chapman takes the mound, it is usually the end for the opposing team. I won't go into the endless statistics available in modern day baseball, but when this man finishes the game, the Yankees usually win.
But this was not to be the case in Houston last night. Altuve was not intimidated by the size and reputation of the New York pitcher. He stood his ground in the batters box and when the ball came toward him, his bat cracked and the ball sailed over the outfield wall – and the Astro's were on their way to the World Series – and the Yankees were on their way home. Sorry to the loyal Yankees fans. NO... I can't do it. I'm not sorry.
How does this apply to real estate investing and what can we learn from this? Real estate investors are facing more competition from well financed hedge funds, realtors are advertising that they buy houses, and now even Zillow is getting into the act. Sure most of us still have our sources of funds and have our ways of contacting home owners who want to or need to sell their property.
We just have to find ways to relate to the sellers that the big money guys – even the better financed local boys – can't do. For example I bought one house for fifteen thousand less than a well known local investor because I listened to the seller. She needed to have money to move and could not wait until the house was rehabbed and sold even though it would have put more dollars in her pocket. Another time a lady sold me her home because I sat down and listened to her – instead of the self absorbed and self appointed big deal came in with his son and all he could talk about was what they were going to do to her home. Tear this out, move that and change the other thing. She felt like they rejecting everything she had done over the years and belittling her.
A distressed house is still a distressed house, but there are real live human beings with feelings of their own living inside. Many are going through difficult times and are talking to us out of necessity. A little respect goes along way. We don't need to be intimidated by the big out of town investors. But we may have to work a little harder to be heard above the noise of TV commercials and ugly house bill boads.
We buy houses, but we also listen.
Sunday, October 13, 2019
If you are selling your house, especially to an investor, cash may seem like the best deal as you can take the money and run. Sometimes, depending your needs at the time, this would be the best choice for you. However, you have a silent partner that already has his hand in your pocket or bank account. Sometime he is not so silent if you haven't paid him. He can get downright cranky and vengeful. His name is the IRS.
Even at today's lower capital gains tax rates, taxes can be a significant expense. Although if you are married filing a joint return, the first $78,750 profit is not taxed but it goes up from there. But who knows what may happen if the levers of power are turned over to some of the crazy politicians who view your money as their money. Like I said before you may just have to eat the taxes if you need the cash right now. If you don't there may be better ways.
If you've owned the property for a while – it may even be free and clear - or have made significant improvements to it, you may have considerable equity, particularly if this is a rental property you have been depreciating over the years. Your basis, that is an amount you deduct from the sales price in determining your profit, is going to be smaller that you may like and the tax bill larger than you would like.
If you have something specific you need the money for this may be acceptable, but you are going to put the money in a bank at what amounts to a negative interest rate when inflation is taken into account, you may want to consider taking back a note and accepting payments over a period of time.
It's often been said that it doesn't matter what you make, what matters is what you keep. Taking payments over time will definitely let you keep more. But that's not all! There will be more to keep.
For instance, if you sell a property for $100,000 cash, you will get $100,000. Simple. However if you take the money in 180 payments at 6% you will realize about $151,800. More than 50% more. If you need a little cash you could receive a $10,000 and finance under the same terms and realize about $146,700. And you only report the capital gains as you receive them, so the liability is spread out over several years.
If you are selling to an investor it's pretty much as simple as that. Of course you need to do your due diligence to make sure your buyer is on the up and up. If you are selling to an owner occupant, Big Brother in Washington gets involved. There are regulations that came from two distinguished gentlemen named Mr Dodd and Mr Frank. There are terms like TRID, etc. that describe just how you disclose everything to the buyer. That may be the subject of another article for another day. Suffice it to say that you may want to find a mortgage broker or loan servicing company to handle the paperwork to dot all your i's and cross all your t's. Courts have ruled that if the information is not properly handled, the note is invalid, the buyer can keep the property and the seller is out of luck. It's not worth the risk, and worth a few hundred dollars.
What if things go wrong and the payments stop coming to your mailbox. Foreclosing on the property is always an option – and you keep the money you already received. However this risk is mitigated by doing the due diligence of thoroughly checking out the people you are dealing with. There are several services that do this very reasonably.
If this sounds like more effort than you care to exert, here are a couple of numbers to keep in mind. As this is written, the best CDs will yield about 2.5%. It's better than a few years ago but your local bankster may not be able to go quite that high as many of these rates are quoted by internet banks and brokerage houses. That may not sound too bad until you consider that government inflation statistics show a current rate of around 2.9%. This number never includes food or energy. We are told because these areas are too volatile. So the best CDs aren't just losing .4% but that number, plus price increases in food, fuel, electricity, etc. What a deal!
It's a lot to digest, but take some time to look at your options. The friendly investor or hedge fund buyer offering you a quick cash price may not always be the best deal for you. It's usually a pretty good deal for him (or her) though.
If you find yourself with substantial funds in less than optimal investments, you could even become the bank for real estate investors. Many have more deals available then they have funds to make them work – and they pay much better rates than regular home buyers. Just a thought to kick around.
Friday, October 4, 2019
I sold a mobile home to a nice lady in a nice park. For a while everything was... nice. However after a while she began hearing squirrels scampering above her living room and driving her little dog crazy. She failed to see the humor in my observation that instead of a drive it was more like a short put.
Wanting to help return piece of mind to her place of abode we discussed various options. I called a local exterminator that I had worked with in the past. He looked the place over and recommended sealing off all the openings along the edge of the roof for a mere several thousand dollars.
This was not in her budget and I was not about to write the check. We kicked around some ideas – remembering the exterminator's recommendation that the barriers installed be metal as the squirrels have sharp teeth and will chew through pretty much everything else.
I looked at different ways of getting the job done. My first thought getting some pieces made up at a local aluminum shop. But that would be more money than I thought would be appropriate considering the lady's financial situation. I considered getting pre-made flashing at the building supply house and cutting it to size.
While browsing through my local blue store I came across some pieces of step flashing. Individually they were not large enough to fill the space, but when pieced together would fill the void nicely and have enough flexibility accommodate the variations in size. Ah but how to fasten them – some more investigation brought me to self piercing roofing screws. And they worked beautifully to fasten the flashing to the aluminum pans that made up the lower roof.
However they could not penetrate the metal strip along the edge of the roof. A titanium drill bit did the job of providing a pilot hole for my roofing screws. And this is what we got... not particularly beautiful, but effective. I challenge any squirrel to gnaw his way though that!
There may be 27 other ways to do the job, and we probably considered half of them. Once we had the process figured out, all it took was filling one hole, then the next a hundred plus times.
So what did it take? Stacks of flashing, boxes of screws, a drill with titanium bit for pilot holes and one for the screws and a tin ships to fit pieces into place.
The operation is farely simple and repetitive. But it works.
Oh yes, and one more essential item... Wasp spray. Not for the WASPs that give SJWs agita, but the kind that fly around and sting when you start messing with their home. Squirrels aren't the only critters that become squatters in available spaces.