Re: Getting calls, but … - Posted by Brent_IL
Posted by Brent_IL on August 25, 2003 at 24:52:00:
You are right. Motivated sellers are the key.
I have no problem with making $2,000 on a deal, but I have to buy their property over lunch, or be in-and-out of the seller?s house in an hour, and we have to find a buyer and send them to escrow in the second sixty minutes.
My first attempt to become a successful creative real estate investor was fairly short. I believed that everything important could be learned in three-day seminars. I didn?t know what I didn?t know.
The second time out I knew a lot more. I dismissed the advice of seasoned investors would advised me to slow down and consolidate. I wanted to make deals. I knew everything. I became so overextended that a slight stutter in the market sent me tumbling into a full-scale crash.
Years later, the third time around, I sought to quantify my real estate activities. I knew that my skill was using a combination of financing terms to buy property. I did a few to collect cash. I decided that I would donate 90 minutes of my efforts or travel time to any deal. Every minute of time after that was mentally billed at a psychotic $1,000 an hour. Phone time, document prep, stalled in traffic waiting to go to a house, advertising, mental what-if scenario development, and pacing in front of a house when a buyer was late, all had the same billing rate.
To accomplish my goal, I had to focus on the most profitable processes that I had the competence to excel at, delegate everything else that could be handled by someone billing less than $1,000 an hour to a qualified and trustworthy person, and then factor in that expense. In the beginning, that someone had to be a person whose costs could be deferred until after settlement because there was no money to pay them prior to the closing of the deal.
Repairs? Nope, delegate. I don?t know how to do them anyway.
Landlording? No, the most expensive property managers don?t charge $1,000 an hour; I?d better get out of any deal quickly.
Pass out flyers? I could get 100 people for what I cost myself.
Eventually, my purpose was reduced to making in-person offers to owners that must sell, briefly coordinating with REALTORS® and attorneys, and re-selling the house or the deal. After a while, coordinating activities and property sales were eliminated from my schedule by delegating these to qualified professionals whose abilities were proven. I still talked to the lawyers about all but the most mundane purchases because I wanted them to know my intentions so that they could adjust the documentation to accommodate my exit plans. My time speaking with them counted toward the total.
Quite a few of the terms that I?ve incorporated into my purchase contract were buried in there so that I wouldn?t have to take the time to explain it. If I had 21.5 total hours in a deal, I expected to make a minimum of $20,000 at the close after all expenses (21.5 - 1.5 free (90 minutes) = 20 hours x $1,000). I counted future benefits, but discounted them back to the present using a modified-internal-rate-of-return investment rate.
Not every deal can be forced to yield a $20,000 profit. You must decide if you want to do them anyway. If I?ve gone to the trouble of locating the seller and meeting with him, I want to leave with something.
This was my method of increasing the probability that the deals that I got into were really profitable and not unseen alligators lying in wait. When I forced myself to comply, I stopped doing marginal deals just to do them.
This validation model is what works for me, but I have no mechanical skills, poor visualization techniques, I?m easily bored, and I like the wheeling-and-dealing aspect of making offers. Your mileage may vary.