Hammers, hype and full toolboxes. - Posted by John Behle
Posted by John Behle on February 11, 2006 at 14:35:57:
Your post seems to invite a direct and pointed answer, so I’m not going to step lightly to avoid anyone’s feelings. At the same time, all we have to work with is your post, so all the details may not be there. But, with what is…
I don’t see a sign of any kind that you know how to find a good deal. Not even a good one let alone a great one. Trying to flip properties with as little as a thousand dollars profit is one of the absolute worst approaches you could possibly have taken. A real estate agent would make a great deal more with much left effort and little risk.
If you can’t make at least 5-10k on a flip it is a waste of time. And… flipping properties is one the most overblown, over-hyped techniques that is out there, but it is followed closely by almost every “popular” technique out there. Flipping hasn’t worked for you and you are not finding deals that are good enough. When there are, it seems like there is a total lack of control and you are prone to getting ripped off. Again, at least an agent has protections. Having greater control is an essential element.
When you do find a good deal, trying to flip it in the way you have has just been a set up to get ripped. And, that’s a big part of the challenge in the whole approach. If you do have enough margins to make a decent profit, a large portion of the buyers are going to do anything to get it. I wouldn’t even consider that approach without having the funds to control it. Raising money for real estate deals is absolutely simple when the deal is good enough. But, consider something else.
I don’t buy that you are as educated as the post claims. It isn’t about the amount of money you spend, but about the quality and reality of the education. All in all, the more expensive courses are usually the worst choice. Some are so ridiculous that you could get the same information in a few cheap books or course than the thousands you pay because of the “guru’s” popular name. That is solely a result of marketing and self promotion. It doesn’t mean that course is better, usually it isn’t. True educators and practitioners tend to shy away from traveling the circus circuit. Way too often, the big names have little experience, little to teach and sometimes even an incredibly appalling lack of education. Some can?t answer even the simplest questions if it isn?t in their script. It also leads to some teaching impractical or even un-ethical or illegal techniques because their own education is so lacking that they don?t even know laws, procedures or reality.
But, in whatever courses you have, they seem to have glossed over how to find a good deal or you’ve missed it. That doesn’t surprise me. My guess would be the courses are “trendy” courses focused on how to make millions on some “new” technique. Reality is there are very, very, very few techniques out there that are new or approaches that are so amazing that they are copyrighted and proprietary. Those are sales pitches. There are whole courses claiming to be the latest new, exciting, proprietary and advanced techniques that you could find in many books or courses from the 80’s. Yet, they claim they created it.
So, from your post. The education you have is inadequate in the area of finding great deals. You are over-focused on doing what you think or have been told is the best approach instead of finding what really works. You don’t have the team and resources needed - like capital to capture or truly control a great deal if you did dig one up.
Also, you get ripped off. Either you do not know how to protect your interests or are too timid or trusting. You either have to change that approach to protect yourself or find a less “thief prone” method of trying to make money. If you haven?t read ?Winning through Intimidation? by Robert Ringer, read it today. If you have, read it again. Too many people deprive themselves of the book because of the title which Robert said one day was his worst mistake. It would more aptly be titled ?How to not lose through being intimidated and ripped off by others?.
Your rentals sound like mediocre deals at the best, but we have little information on that. Again, the deals are NOT good enough. It isn?t about the market. There are deals in any market and techniques that work in any market. Just not always the same ones in each market. Again, that is a problem with the latest ?trendy? course. The technique they claim will get you your Lear Jet may not be practical in your area. And, not knowing what techniques work in a particular area is again a lack of education. Both in real estate principles and practices, but in local market conditions. Few courses teach you how to know your market.
Make your money when you buy. Period. That is the absolute greatest error people make these days. The books aren’t titled “making money on mediocre deals” (though that title would get two thumbs up from John Reed), yet that is basically the premise of many courses. A great deal can lessen the need for carrying costs, etc.
I see three flawed approaches you have taken.
Flipping deals for too little profit to make it worth your while.
Trying to flip deals with bigger profit, but not taking necessary actions to protect yourself. In some cases, the only true protection is to have the required money of your own or a private investor.
Mediocre rentals. A friend of mine wrote a great article twenty some years ago. He was probably the best real estate accountant the country has ever seen. He compared the typical approach of people buying rental properties with little or no cash flow - with getting a second job at a 7-11 or something similar. The job won out financially. That doesn’t mean quit real estate, it means there are flaws to some of the typical approaches people take - especially when it comes to holding and managing properties for the long term.
So, what is the solution. Learn to find great deals. That IS possible, but takes some training and focus. Many courses and authors truly do not teach or even know some of the best sources of good deals. A part of the problem with that is the “hyper-focus” of much of the newer courses. From a marketing perspective, it is great for them, but not necessarily for the student. People buy into the latest “technique” and lose the heart of the profits of creative real estate investment.
It’s the old “hammer” analogy. “He that is good with a hammer thinks everything needs a nail”. And they have elaborate courses teaching how to use a hammer and send their students out looking for deals that need nails. Then the next guy makes his marketing mark in the world by coming up with a course about screwdrivers and everyone raves about how wonderful the approach is.
A couple decades ago marketing took over the real estate education industry and reality took a second place. It’s become the “Scotch Boutique”. A skit from Saturday Night Live focuses on a store in a mall whose sole product is “Scotch Tape” and illustrates the error of being too focused. The characters just could not understand why there were not lines of people waiting to get their tape.
I have NO IDEA going into most deals how it will turn out and what techniques will be used. I don’t run around with a hammer. I look for a problem and have a full toolbox with the appropriate tools. Most great deals are much different than how they looked on the surface and different tools (techniques) are used than would have been anticipated. Most of the time, it is a combination of many tools. It might be a foreclosure deal where we buy the first, discount the second, trade out the third, refinance the property, sell back to the original owner (or someone else like the tenant), pull the owner out of bankruptcy, fix up their credit and arrange a lower rate refinance and make profits on all elements of the deal while saving someone?s tail end.
That’s a big part of the problem too. The “hammer guy” finds what could be a deal - but - because he has a hammer and ?hammer training and focus? doesn’t pull it off. They do not see the potential of a different technique and in most cases wouldn’t even understand the technique that would actually pull it off. Some of my very best deals have been referred to me by hammer people.
Besides finding better deals, even more important is ?creating great deals?. My best deals are usually deals that very few people could even see as being a deal. A total lack of knowledge about my techniques I am using. You look at a deal and see potential based on your knowledge and the techniques you know. I look at a deal and see other areas of potential. Most people do not know enough about a deal to know the potential. Again, just running around looking for visual clues to properties that need nails. The true potential of deals is usually much deeper under the surface than most potential investors look - or know how to look.
Before real estate I was a mechanic, built street racers and ran a gas station. I can still get into a car and based on sounds or other clues usually know what is wrong. Over a phone call, I can tell a relative why their car won?t start or runs poorly. Most real estate investors are like the clueless person standing on the edge of the freeway with a dead car - when wiggling the battery cable would solve the problem.
True, long term, real estate profits are best accomplished by having a rounded knowledge and a full tool kit. A problem solver approach works. People have real estate problems and you can profit from fixing them. It doesn?t have to look a certain way. A problem comes along and I may buy the property, I might buy the note, I might refinance their loan, make a hard money loan, do a sale-option-leaseback, or maybe a consulting fee.
When you have the tools, you can also live off of the deals that others can?t handle. All of a sudden, the ?competition? at a real estate club or in your town, ends up bringing you deals all day long that they can?t put together. I guess my background also helped solidify this in me. I started one of the first REI groups in the country almost three decades ago. Being a real estate agent, exchangor and better educated than most of them led to helping them. Every week, almost every day, I had them bringing me deals where they ?smelled? a deal, but did not know how to put it together. Way too much of the time, I took my time and taught them how to do it and was lucky if they even picked up the cost of the lunch.
Eventually, I started charging consulting fees and then went on to giving them a referral fee for me to do the deal. Mainly because they griped about my hourly fee. Charge them $150 per hour for ten hours a work and they totally overlook the $30,000 profit they made and think I over-charged them. No thanks! I learned to give them the $1500 and not even tell or teach them how I did the deal or what I made. I usually did teach them though, so they could do the next deal themselves.
I took much the same approach when I made the transition to note investment. Eventually I was thrilled with the real estate version of ?diploma mills? churning out people that only knew enough to be dangerous. When they know you as the number to call when they can?t put a deal together or broker it to their ?national database of investors? then there are deals all day long. I can?t think of a deal I have ever lost to one of these guys, but they have brought me many. I just send them away confused. They know they made $1500, but have no clue I made $15,000 with techniques they will never know.
Need to go, so I?ll have to end the post now. As long and tedious as my posts are sometimes, I should probably say ?thus endeth my epistle?.