In the last blog, we discussed how questions can help and hinder you. What are the questions to ask yourself and others to empower you to get to where you want to go? If you missed that click here take a look.
How does this apply to real estate investing? I’m going to touch on how it applies to how you go forward with your own investing plan and secondly how to conduct your real estate business.
First your own investing plan, it’s nearing the end of the year and many of us are thinking about next year and our investment strategy to make things happen. We can use questions to establish our own investor identity. So, who are you as an investor?
Following are questions in 10 different categories to help you get a better definition of who you are as an investor. Answer these at a rapid pace, don’t over think this. Go with your gut. Your first response is your best. Then move on.
Let’s think in terms of this year. Take less than a minute for these questions.
1) What’s your primary objective?
This has to do with what you want the property to do for you financially: What’s most important to you, monthly money (cash flow), long-term growth (equity), tax benefits (depreciation), Chunk money (flipping) (2 minutes)
- Are you trying to build your income for today? Net worth for tomorrow? Lower tax liability? Need predictable steady income? Or are you building long-term wealth?
- What are you currently doing to move towards those goals?
- What skill do you need to move towards these goals?
- Who do you need to connect with to get these goals done?
2) Risk Tolerance (Conservative / Aggressive): how much risk you are willing to accept?
- What does an aggressive investment look like to you?
- What does a conservative investment look like to you?
3) Property Type: What type of properties are you interested in? (30 sec)
What type of investments are you interested in? SFR, Multi-family, large portfolio, commercial? What’s scary? Single Family / Larger buildings Asset Class (Land / Large Campus)
4) Property Profile: Asset Demographics (Warzone / Pride of Ownership) A, B, and C Class properties.
WalMart/Target/Nordstrom? Where are you comfortable “shopping?”
5) Property Management: How involved do you want to be in the day-to-day operations properties? Self–Managed / Professional
How do you feel about paying for realtor fees, tenant placement, plane tickets for the team to fly to meet/create referrals, etc?
6) Investment Proximity: Have you ever considered investing out of state
Where are you willing to invest? How far are you willing to go? Next door? Out of the country?
7) Time Horizon (Short/Long)
- Unless your flipping, Real Estate isn’t a very liquid asset. How long are you are you comfortable having your investment money in a project?
- When do you plan to start moving toward your goals?
- When do you think it makes sense for it to happen?
8) Partners (Long Ranger / Syndication)
- How do you feel about having more people involved in the same deal as you?
- How would you find partners? How long would you want to do business together?
What are your resources? Do you have time? Do you have money? What are your experiences? Do you have skills, credit?
10) What’s it all for? And why?
Why do you get up in the morning? What’s it all for?
Now how we can apply questions to our own real estate business, here’s a case study of a flip I recently finished. Questions are in bold.
I meet at women “Kim” at my cashflow game she wanted to have a coffee. Her father had just passed away and she was left his house. A 2/1 in Cambria, CA. Her Dad was a collector and it was filled to the brim with stuff and she didn’t know what to do with it. The first question I asked… “how can I help?” She realized she didn’t want to clean it out and was wondering if I wanted it to flip or could help her sell it with a wholesaler. She needed to figure out her taxes basis and so I connected her with my accountants and we went to the house.
It was actually in a great location only 2 blocks from the beach. And although very congested with stuff a good opportunity for someone. I considered flipping it myself, but with my schedule and it is 3.5 hours away I dismissed that idea. I put this under contract and sent it out to my network of wholesalers. We had some bites but not at a figure Kim was comfortable with. She was disappointed and so was I.
Then I realized maybe I wasn’t asking myself the right question… how could I do this flip so that it worked for me? My initial objection was that it was too far away for me to be there all the time. So I started seeking out partners that I knew well and would tag team with me on the flip. Neither one of us would have to be gone all the time. Next question, how do I make the numbers work? I asked Kim, do you need the money right away? Would you seller finance it for me? Yes! Now all I needed was some rehab money. I asked a friend could you lend me 80k for a 10% return for 6-8 months? The answer again was yes!
Was that all the questions? No! The rehab began. We found out we have some foundations issues. We invited several companies and asked many, many questions about all the different ways it could be fixed. We choose a way and when with it. There aren’t as many vendors in the Cambria area. And in Cambria, we are working with “craftsmen” who are very expensive and run 8-12 weeks out. We would be done with the project in 8-12 weeks. So, we asked a different question. How can we get the materials up here and installed quicker and cheaper? We ordered materials from our regular vendors in LA and trucked them up to Cambria. It was cheaper AND quicker. We even added a bonus for our flooring person to have a weekend at the beach house after it was complete.
My partner and I split our time in Cambria.
Here are the numbers.
We purchase the house for $400k put 80k into it and we sold it for 640k. After all our closing costs, 2 escrows and holding costs we cleared approximately 88k (44k each).
Now I have one last question… What will you do to propel yourself forward this year?