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Capital Formation and Capital Placement
Capital Formation and Capital Placement
s Your Real Estate Investment Structured To Lower Risks While Increasing Profits?
|Posted on 5 June, 2013 at 18:48||comments ()|
Is Your Real Estate Investment Structured To Lower Risks While Increasing Profits?
One of my most prized skills as a professional investor is my ability to sniff out amazing real estate investment opportunities and then engineer creative and lucrative deal structures to lower investment risks while increasing investor profits.
While choosing a strong market and property are certainly important pre-requisites to a successful real estate investment, I view individual properties as pawns in a larger game of financial strategy; the financial and ownership structures surrounding a real estate investment have more impact on my bottom line than the sticks and bricks in the transaction.
I've simplified some of these strategies into sound bites to help you do this. Even though investing tends to be based on each investor's personal investment philosophy than universal rules, I call these sound bites "Hassle-Free Cashflow Investing Rules" .
Hassle-Free Cashflow Investing Rule: Buy what tenants want. It's a lot easier to purchase a real estate investment your tenant wants to live or do business in than it is to convince a tenant to want to live or do business in a property you already own.
In today's buyer's market, there are a lot distressed commercial properties that need to be repurposed to a higher and better use. The economic collapse of the community banking business model as well as technological advances in online banking have resulted in a slew of vacant bank properties and very few banking tenants looking to lease them.
It would be a bad business plan to acquire a vacant bank and try to release it to another bank. My partners and I recently acquired a vacant bank property we are converting to a Class A medical office building because that what tenants in this area are looking for. We started with the tenant and then located the property. My team brought the active management / sponsorship / development resources to the project and several of my clients provided the passive equity for the project.
Hassle-Free Cashflow Investing Rule: Start with a real estate investment business plan not with a property.
Our business plan is to purchase vacant (bank) buildings and convert them into medical office. Our real estate investment strategy was to identify a strong primary care physician group to be the anchor tenant and then go shopping for a desirable property together. The anchor tenant physician located a vacant bank building in a fantastic location where he would love to locate his business.
The property is on a major thoroughfare with good signage visibility, close to a hospital and in a large population center. These are promising attributes for any medical office, but there were positive attributes about this particular property that appealed to the tenant which I would have never thought of. First, the tenant needed a property that could easily accommodate ambulance access. Second, the tenant wanted a property in a "health professional shortage area" (HPSA) with a specific HPSA score that increased the amount of government subsidies doctor tenants in this building would receive.
If your HPSA score isn't strong enough you may have difficulty attracting doctors to your building and you may have to lower your rents to do it. HPSA scores change street by street based on census data. In effect there is an invisible line down the street that says "this property is more valuable as medical office than the property next door" because of where the line is drawn.
Hassle-Free Cashflow Investing Rule: It's essential for a prospective landlord to listen to their tenants and discover what they value most.
I steer new investors towards owning houses as their first investment because it is fairly intuitive to understand the amenities residential tenants will pay for and what they won't pay for (number of bedrooms, proximity to jobs, etc.). When you are in the world of commercial real estate, prospective tenants are fewer and their needs are more exact. Instead of starting with a property, it can be much more lucrative to go shopping for a property with a prospective tenant or buy a property with a strong anchor tenant in place and fill up the surrounding vacancies with those types of tenants who have a proven history of success co-locating with your anchor.
Hassle-Free Cashflow Investing Rule: For a real estate investment partnership to be successful each partner needs to offer a resource the other does not possess.
The basis of my value proposition to the primary care "anchor tenant" looks like this: "You become the anchor tenant in our multi-tenant office building and invite the doctors who receive your patient referrals to lease additional space. My team will put up most of the money as well as the real estate skills needed to purchase a vacant property, redevelop it into a large multi-tenant office, and then manage the mechanics of the property and a complex financial transaction.
We each bring something unique to the partnership and we'll co-own the property in partnership together." By partnering with my anchor tenant, I am 100% confident our building will have higher rents and a higher rate of occupancy than if I were trying to do this real estate investment on my own.
Hassle-Free Cashflow Investing Rule: Privacy can be a valuable tool in your real estate investment arsenal.
My anchor tenant physician located the property he felt was perfect for his practice. It became my team's job as the real estate professionals to negotiate a favorable price and terms with the seller. We put on our best poker faces and made sure the seller did not know the identity of our high profile physician tenant by writing the offer in the name of an entity controlled by my team.
It appeared the seller was distressed because the property was vacant and the seller's prospects for finding another bank tenant were slim, but if the seller knew who our tenant was our intended use of the property the price would have surely gone up. It was easier for my team to negotiate aggressively with the property seller because we were not as emotionally involved with that specific property, as our anchor tenant was.
Although we had a property identified and an anchor tenant lined up, there were still miles and miles to go before we had a viable project. It took a lot of time and resources for my team to develop financial forecasts based on rental income, operating expenses, redevelopment costs, availability and costs of capital, etc. It took months to create architectural drawings and use those drawings to entice prospective tenants to sign binding leases in our property.
It took weeks to get our building permits and change of use permits approved by local government. And then there was the financing! A huge risk in purchasing any property in this economy is the availability of conventional financing. A lot of banks that issue attractive terms sheets for commercial loans only to back out at the closing table, leaving you scrambling.
Hassle-Free Cashflow Investing Rule: Shift as many financial risks as possible from the Buyer (you) to the most motivated party in the real estate investment transaction (usually the Seller).
In our project, we were able to negotiate a four month escrow with the ability to extend the escrow an additional three months if required by our lender. We used this extended escrow to complete all of our pre-development activities. Architectural plans were drawn, leases were signed, permits were approved, guaranteed maximum price bids were solidified with our construction contractors, and we had time to shop the debt and equity we needed for this project.
Our long escrow period shifted all of our pre-development carrying costs onto the seller and more importantly we drastically reduced investor risk. In the event we were unsuccessful leasing the building during the escrow period, we structured the purchase contact such that we could cancel with no penalty and thus dodge the bullet of purchasing a vacant, unleaseable building.
We eventually closed escrow on the property without ever putting a dollar of earnest money at risk and all of our architectural fees were paid at closing after we'd raised all of the capital through syndication!
This business plan worked out well and I am grateful to have a strong team and partners to work with which is why I can write this newsletter with a smile on my face, but not every real estate investment is smooth sailing. I invest a lot of resources into real estate investment projects that never go anywhere; that is just part of the cost of doing business. As a professional investor, it is my job to forecast where the hurdles of each real estate investment might be and determine the probability of clearing these hurdles while putting the least amount of capital at risk.
Hassle-Free Cashflow Investing Rule: Novice investors will make mistakes and that's OK as long as you've started small.
A great place for new investors to start is the acquisition of like new construction, entry level single family homes purchased from a developer who offers a builder's warranty and investor-friendly terms is. The process is not complicated, you can do your due diligence while putting little or no capital at risk, and the opportunity to learn from the experience is high while the risk is low. This is more than a shameless plug for my homebuilding company that sells positive cashflow, like new homes with creative investor financing.
I really want you to take this paragraph to heart and not overextend yourself on your first few deals. When you are a new investor, your first few deals should be as simple as possible so you gain experience, confidence, and a positive track record to set you up for future deals.
As you grow and diversify your real estate investment portfolio into more complex transactions, consider becoming a passive investor in group investments with sponsor who can mentor you through the process. My first venture into medical office development was simply writing a check to another developer who did all the work and mentored me through the process.
You can read about real estate investing all you want, but until you've jumped into a deal with both feet, you're still a newbie who doesn't know what he doesn't know. If you want to lower your real estate investment risk while simultaneously venturing into potentially more lucrative ventures, let's talk.
I am a teacher at heart and I love mentoring new and part-time investors. If you are looking for a real estate investment to work hard so you don't have to, my team can also help you become more of an armchair investor.
Regardless of your real estate investment style. If you'd like help lowering your investing risks while increasing your real estate profits, please reach out to me and I'd be happy to help.
David Campbell is formerly a member of the teaching faculty of California State University Fullerton, Santa Ana College, Azusa Pacific University, and has taught on the eight day Investor Summit at Sea with Rich Dad Advisors Ken McElroy (author of ABCs of Real Estate Investing) and Wayne Palmer (Real Book of Real Estate).
David is a Real Estate Investment Strategist and he can be reached at: (866) 931-9149 or by emailing him at: [email protected]
© 2005-2013 www.ValueHoundAcademy.com All Rights Reserved. Reproduction without permission prohibited.
Six Steps for Self-Transformation
|Posted on 16 May, 2013 at 13:38||comments ()|
Six Steps for Self-Transformation
Do you feel trapped in your job? Most of us have experienced work situations in which we have felt trapped in an unsatisfying job that feels to us like a prison. What we don't realize is that in these situations either we hold the key and don't use it, or we willingly hand the key over to others – our bosses, our clients, or our colleagues, for example -- and let them be our jailers. In these situations, we lose all of our power either to the people whom we've made our jailers or because we don't acknowledge that we are our own jailers.
There are always three possibilities to resolve work situations like these – in fact, any situation in which you feel trapped. You can:
1. accept it fully;
2. change it; or
3. remove yourself from it.
In today's economy, it isn't always feasible to remove yourself from the situation by changing jobs. This leaves the choices of fully accepting your situation as it is or changing it so that you won't feel trapped anymore. In my opinion, both of these options can only be accomplished through self-transformation. Self-transformation is self-motivated change from within that increases your ability to accomplish your goals. It comes from shifting your perception, realizing that you are responsible for putting yourself in the situation in which you feel trapped and for voluntarily not using the key or for giving it to others. Self-transformation empowers you to use the key to free yourself! In other words, you'll find that by transforming yourself, you've also transformed your experience of your job!
Self-transformation involves six steps.
Step 1: Decide that you want to transform yourself and commit to the process.
Motivation is a key to self-transformation. We tend to resist change because change is scary. It means giving up familiar ways and entering unknown territory. Even if the old ways are painful and produce less-than-stellar results, we stick with them because we know we can exist with that pain and the frustration. It is familiar pain, and consciously or unconsciously we fear that unfamiliar pain will be worse. Generally, we make the decision to transform ourselves only when something in our lives is going so badly that we don't want to put up with it anymore.
I mentioned that self-transformation requires a shift in perception. Instead of blaming external circumstances for your dissatisfaction, you need to look within. Acknowledge that something you're doing is contributing to the experiences you don't like and that you want to change to produce better results. This means recognizing that if you want your present to be different from your past, you have to be different from how you've been up to now. Self-transformation is a challenging process and it can be accomplished!
Step 2: Look at your past and identify the dysfunctional patterns that have been determining your actions and experiences up to now.
This requires learning how your mind works.
Essentially the mind hasn't changed much since the early days of hunting and gathering; it still operates just like our ancestors' minds did millions of years ago: It interprets everything that happens and, based on those interpretations, it invents tactics intended to help you survive. It doesn't matter whether you're facing an important meeting or a woolly mammoth from prehistoric times, your mind is always looking for ways to survive what it perceives as a threat to survival. A “threat to survival” may just be another's person's comment that the mind interprets as an insult. The mind bases its survival strategies on what it believes worked in past situations. It does this automatically, without conscious awareness. As a shorthand, I refer to the automatic workings of the mind as our machinery and to the mental "software" that determines our responses as our programming.
To transform yourself, you must become aware of your individual programming, the voice in your head that wants to tell you how to act and react to everything you encounter. The process of self-transformation requires you to monitor that voice constantly -- to realize that the voice isn't you; it's just your machinery and advisor; it's not your boss. Self-transformation requires learning to question its perceptions and interpretations. When your mind is acting automatically—as it does most of the time—it can give you good or bad advice.
Self-transformation requires letting go of patters of acting and thinking that come from your past. This means looking at your past to see how it has influenced the way you have acted up to now.
For example, Lyle is a businessman who generally has issues with his bosses. Reflecting on his past, he realized there was a link between fighting with his bosses and fighting with his father. Growing up, Lyle saw his father as authoritarian, arbitrary, and critical. He felt his father never acknowledged, heard, or saw him. He felt that the only way he could get what he wanted was through confrontation.
Lyle eventually came to recognize that fighting with his boss was just old programming running on automatic pilot hurting his career and making him feel trapped in his job. He was reacting to his bosses as if they were his father.
Jennifer is a businesswoman who never had friends at work. Reflecting on her past she saw that her "shyness" began as a child when her father kept being transferred from location to location. She found making friends difficult. Looking back, Jennifer realized that because she was acting on automatic pilot and letting her programming run her behavior with her colleagues at work, she was duplicating her childhood pattern of not making friends.
Step 3: Identify your old Organizing Principles.
All of us have conscious and unconscious beliefs that we hold as facts instead of realizing that they are only perceptions based on feelings. These beliefs, which come from your past experiences, have been dictating how you act. I call these mistaken beliefs that we hold as facts our Organizing Principles.
These were Lyle's Organizing Principles:
•Men in authority positions are arbitrary and like to exercise power for its own sake. They don't deserve my respect.
•I have to fight to be seen and heard.
•If I compromise, I'm weak (and I won't survive).
Jennifer's Organizing Principles:
•People won't like me because I'm shy and they already have friends.
•It's not worth the effort of trying to make friends because I'll just lose them anyway and it's painful.
Step 4: Create new Guiding Principles.
Next, you must replace your old dysfunctional principles with new positive principles that will bring you from the past, into the present, which will open you up to the possibility of getting what you want -- new and more fulfilling experiences at work! I call these new principles Guiding Principles.
Lyle's new Guiding Principles might be
•Men in authority positions may be right and may deserve respect.
•I can be heard and seen with positive self-expression and without confrontation.
•It's a sign of strength and maturity when I choose to reach a compromise.
Jennifer's new Guiding Principles might be
•People want friends; I'm valuable so they will like me.
•New friends enrich my life.
•It's more painful to be lonely than to risk rejection or loss.
Step 5: Interrupt your mental machinery by observing your old Organizing Principles and instead of acting automatically on old Organizing Principles, consciously substitute your new Guiding Principles.
Feeling defensive, upset, angry, anxious, or frustrated is a clue that the voice in your head is reacting to situation based on your old Organizing Principles. When any of these feelings come up, know that you have a choice to stop reacting automatically and instead choose to use new Guiding Principles.
For example Lyle's can remind himself to actually listen to what his boss is saying instead of reacting as if he needs to fight and Jennifer can ask colleagues to join her for lunch even if she feels nervous and uncomfortable. She can consciously remind herself that having the relationships she wants are worth taking a risk.
Step 6: Live fearlessly.
Self-transformation comes from being courageous. You have to let go of past conditioning and proceed into unknown territory, facing fears and not giving in to them. Living fearlessly doesn't mean you won't have fears; it means acknowledging your fears and moving ahead anyway! Instead of letting your fears keep you in the past, you'll move into the present, where anything is possible. This is the essence of self-transformation.
Steven J. Fogel is a principal and cofounder of Westwood Financial Corp. and the author of My Mind Is Not Always My Friend: A Guide for How to Not Get in Your Own Way (Peppertree Press, 2010) and The Yes-I-Can Guide to Mastering Real Estate (Times Books-Random House).
Return on Equity
|Posted on 7 February, 2013 at 0:43||comments ()|
1. Many people focus on making money from cash flow, appreciation and potential tax benefits. Today, we will look at another attribute of investing in real estate that is sometimes, but not necessarily, researched properly before refinancing. The idea is known as Return on Equity.
2. The equity in a property is the difference between the loan amount and the fair market value of that property. This equity that belongs to the owner has the potential to be used as investment money for future projects. The question is when should the owner use the equity to invest in that next project and when should the equity be left in the asset and not touched.
3. Mortgage rates are near record lows and job prospects are improving plus there is an increase in housing starts. Mortgage lenders such as Wells Fargo, indicate that in the next 12 months there will be an increase in housing prices, activity in sales and in housing starts, even though the U.S. economy is slow to recover. For more information on the significance of this, be sure to take our Rich Dad Education Elite Creative Financing Course.
4. So when should the owner consider using the equity in one asset to purchase another asset? When the Return on Equity meets their criteria! That means the return they receive on their equity is greater than the return they receive from other types of investments i.e. stocks, bonds, etc. The Return on Equity is calculated when you take the annual cash flow plus the annual appreciation and divide that by the equity that is left in the asset.
5. To do this, an investor would first calculate the Return on Equity on the asset before they refinance to see what the return is. Second, the investor would then do the same Return on Equity calculation after they refinance to see what that return is. There is one additional piece to the puzzle. The investor will also calculate the Return on Investment on the money used to invest in the next project. If the Return on Equity after refinance plus the Return on Investment added together are greater than the Return on Equity before the refinance, then that is the time to refinance and move the equity into the new investment.
6. To find out more on how to take advantage of your equity consider taking our Rich Dad Education Elite Creative Financing Course.
Richard Maryanski and Erik Maryanski
Rich Dad Advanced Elite Trainers and Mentors
Successful vs. Unsuccessful People
|Posted on 31 January, 2013 at 0:43||comments ()|
The Importance of Teamwork
|Posted on 30 January, 2013 at 22:07||comments ()|
Whether in the workplace or on the football field, or even amongst members of a community, effective teamwork can produce incredible results. However,working successfully as a team is not as easy as it may seem. Effective teamwork certainly does not just happen automatically; it takes a great deal of hard work and compromise. There are a number of factors that must be in place to cohere together as a team and work seamlessly.
• Good leadership: Effective leadership is one of the most important components of good teamwork. The team's leader should possess the skills to create and maintain a positive working environment and motivate and inspire the team members to take a positive approach to work and be highly committed. An effective team leader will promote a high level of morale and make them feel supported and valued.
• Clear communication: Communication is a vital factor of all interpersonal interaction and especially that of a team. Team members must be able to articulate their feelings, express plans and goals, share ideas and see each other's viewpoints.
• Establishing roles: It is absolutely necessary for team members to understand what their role on the team is, what he/she is responsible for. The team leader can enable this by defining the purpose in a clear-cut manner in the beginning of the formation of the team.
• Conflict Resolution: Conflicts will arise no matter how well a team functions together. The best way to counter conflict is to have structured methods of conflict resolution. Team members should be able to voice their concerns without fear of offending others. Instead of avoiding conflict issues, a hands-on approach that resolves them quickly is much better. It is often advised that the team leader sit with the conflicting parties and help work out their differences without taking sides and trying to remain objective if possible.
• Set a good example: The team leader must set a good example for good teamwork to come about. In order to keep team members positive and committed and motivated, the team leader herself/himself needs to exhibit these qualities. The team looks to the leader for support and guidance so any negativity on the leader's part can be disastrous.
Regardless of what type of sales you are in, you may one day be asked to be part of a team sales effort, and knowing how to effectively work on and with a team is going to be crucial to your success and that of your team.
Kofi’s note: This article is also important in real estate, especially in syndication.
3 Tips to Make Customers Key in Your Business Referral Plan
|Posted on 30 January, 2013 at 1:59||comments ()|
3 Tips to Make Customers Key in Your Business Referral Plan by Christian
Creating a valuable business referral plan can be vital to the continued growth of your company. Since the best source of referrals is always going to be happy consumers or clients, you cannot find a move valuable prospect than an individual that has been sent to your business from a satisfied customer. The biggest challenge for any business is how to get their satisfied customers to openly and actively promote their products and services.
Make the Business Referral Plan Work for You
There are a few basics to implement in any good marketing plan that will help to train your current clients to be walking, talking representatives of your business.
It may sound simplified and it is. However, often the simple task of asking for referrals falls to the wayside in the day-to-day grind oftentimes. The best time to ask for a business referral is while in the process of delivering the most excellent services or products. For etiquettes sake, try not to ask for referrals at the beginning of a transaction, but instead as the transaction is being completed such as when making changes or during the signing of a contractual agreement.
Teach Your Consumers to Work for Your Business
Make it as easy as possible for your current clients to refer your business. While many of your consumers would be happy to refer you, they may not know how. Create a short, catchy and easy-to-remember URL for referrals, or give away free business cards near where consumers pay or check out from your products or services. Buy or build a sign up box where customers can sign up to a monthly newsletter or jot down a friend’s contact information. If you utilize online review services like Yelp, make sure to share where consumers can go to leave you a positive review. Buy that easy-to-remember domain name to redirect to your review site.
Thank Your Referrers
Always thank referrers. Find a manageable system for rewarding and acknowledging those who refer their friends, family and associates to you. For those who refer entire businesses to you it’s important to find something bigger and better than the acknowledgements you give those individual referrers. Consider consulting a marketing expert to help you create your own method of referral rewards for your employees as well as your consumers or clients.
Word-of-mouth is still the best method of marketing referrals in today’s digital age. While many of the referrals today do come through digital platforms such as social networks, they are still, in essence, the same as those referrals given face-to-face. Those consumers who come to your business via a referral from a friend or associate are arriving on your business’s doorstep with a default level of increased trust that differs from a walk-in or browse-by type of consumer. Always nurture those relationships and you will have one more customer willing to increase the chance of word-of-mouth style referrals. This continual cycle of any good business referral plan will work for your business, even after closing time.
Christian Fea is CEO of Synertegic, Inc. A Joint Venture and Referral Marketing firm. He exemplifies how to profit from Joint Venture and Referral relationships by creating profit centers with minimal risk and maximum profitability.
14 Strategies to Maximize Return On Investment
|Posted on 26 January, 2013 at 21:45||comments ()|
14 STRATEGIES TO MAXIMIZE YOUR RETURN ON INVESTMENT
Five things readers should do when making a real estate investment:
1 Do your homework: do as much research as you can about theparticular market where you are looking to invest
2 Determine the value: figure out the real value of the piece ofproperty you are looking to purchase
3 Evaluate the context: once you have the market research andestimated valuation, take a comprehensive look at the bigger factors todetermine viability, including the larger real estate market trends
4 Secure governmental assistance: a key method to leveragingproperty purchases in this market is locking in government assistance
5 Negotiate with the lender: be assertive in how you negotiate yourmortgage with the bank
While these concepts are paramount in a down market, a wiseinvestor should incorporate them in every deal in any market.
Tips on how anyone can score in a recession plagued market:
In addition to the five tips outlined above, to further guarantee asuccessful real estate deal, an investor should be well-educated on thefundamentals of the market. More specifically, the investor needs to:
1 Understand historic real estate cycles
2 Buy in the right regions, the right cities, and the rightneighborhoods--pay attention to the fundamentals; real estate is still alocal business and is affected by local and regional conditions
3 Buy quality, even if it means spending more time searching
4 Buy when very few people are buying; that's when thingsappear to be at their worst and opportunities abound
Top tactics to seal the deal:
1 Identify what the seller wants and find a way to give it to them
2 Never reveal your hand, which means never buy or act out ofemotion
3 Be patient--If one deal does not work, keep moving forward; aset-back is often an opportunity in disguise
4 Pay attention to the details and what they reveal
5 Remember that everything is negotiable
R. Peebles is author of The Peebles Path to Real Estate Wealth
COPYRIGHT 2009 Earl G. Graves Publishing Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder. Copyright 2009 Gale, Cengage Learning. All rights reserved.
What's Your Investment Strategy for 2013?
|Posted on 1 January, 2013 at 22:53||comments ()|
What's Your Investment Strategy for 2013?
The U.S. economy and real estate markets are sending confusing signals but using the right strategy could really pay off for real estate investors. The question is, what's your investment strategy going to be in 2013?
Fortunately, we have Chris Lee, a Value Hound Academy Advisory Board member and contributor, to shed some light on this vexing subject. Chris publishes a regular newsletter called the Strategic Advantage and recently wrote a very compelling article that is a must read - for all real estate professionals.
Here's a quick overview of the article, and a link for you to download the complete full length newsletter and article:
What Is Your Core Strategy For 2013? "Run For Your Life"..."Tread Water"..."Go All In", By: Christopher Lee
Life in the real estate industry is all about risks - from hiring talent, selecting partners, identifying investments, incurring debt, terms and conditions, to pricing. Real estate is a game of calculations, maneuvers, assessments, strategy and decisions. As T.S. Eliot said, "Only those who will risk going too far can possibly find out how far one can go."
Over the past 40 years, the real estate industry has been defined (and maligned) by those who do not want to be ordinary. The entrepreneurial risk-takers and the 10Xers, as Jim Collins would label them, have been rewarded.
However, as we get ready for 2013, this time it is different. This time the road less travelled may not be worth taking, or maintaining status quo may have far more risk than going all in. Opportunities seem hard to find because of an increasing reliance on heuristics. Indeed, these are uncertain times when selecting the right strategy can be the difference between success and failure.
Knowing "what is next" or "what is around the corner" can be a daunting challenge for those possessed by dubitare (i.e. doubt/hesitation). Today we are at a tipping point between more of the same and an era of endless possibilities.
While the future of the real estate industry is assured, the journey and how-to-get-there are in doubt. The determination of success over the next five to seven years will be based on strategy not tactics, actions not theories, leadership not fellowship, psychographics not demographics, and goals not hypotheticals. Now is the time to shed cognitive bias and take control of your destiny. Failure to develop and execute the proper strategies ultimately will result in becoming Sisyphus forever.
We have a fragile economy with an increasing probability of becoming recessionary by 1Q/2Q 2013. We have subdued expectations for economic growth. QE3, the $480 billion fiscal rescue of choice, not necessity, by the Fed ($40 billion a month until there is a substantial turn in job growth) is a report card on the failure of the current economic policies to revitalize the economy.
The Fed's balance sheet has risen to nearly $3 trillion from less than $1 trillion before the fiscal crisis. Remember that the Fed holds $1.64 trillion of government debt (as of early September 2012), and as a result has reduced government interest expense and size of the government's operating deficit ($1.164 trillion for the first 11 months of fiscal 2012). Today the Fed owns $1 out of $6 of the national debt...the largest percentage in history.
Eventually interest rates will rise, and I expect by 2017 - 2018 net interest expense could rise to nearly 3% of GDP...the highest level since 1948. The Fed's QE3 bailout of excessive government spending distorts reality, and real estate entrepreneurs are uncertain whether to buy, sell or hunker down. Inflation risks have increased with the QE3 decision.
We continue to muddle through an anemic economic jobless recovery, and the 20 million or so unemployed or under-employed Americans are becoming frustrated and disillusioned. We have a Federal Reserve that, according to many analysts, is "out of tricks," and daily we experience the results of political gridlock, unprecedented deficit spending and the pending Taxmageddon in 2013. While I expect a more traditional economic recovery to begin in 2014, the current malaise is, unfortunately, consistent with past real estate cycles.
So, what can one do? What are the options and macro trends to be considered for 2013 and beyond? Is this a good or bad time to invest in real estate? Is this the best or worst time to undertake growth initiatives? Is this the best time to hire or maintain the status quo? Is this the best time to accelerate new initiatives or curtail existing activities? Is this the perfect time to sit on the sidelines and wait for a more certain future or take advantage of turmoil and chaos?
The answer to these and other questions asked by many readers is the basis for this month's issue of Strategic Advantage.
your post here.
What's Your Investment Strategy for 2013?
|Posted on 18 November, 2012 at 20:49||comments ()|
What's Your Investment Strategy for 2013?
The U.S. economy and real estate markets are sending
confusing signals but using the right strategy could really
pay off for real estate investors. The question is, what's
your investment strategy going to be in 2013?
Fortunately, we have Chris Lee , a Value Hound Academy
Advisory Board member and contributor, to shed some
light on this vexing subject. Chris publishes a regular
newsletter called the Strategic Advantage and recently
wrote a very compelling article that is a must read - for
all real estate professionals.
Here's a quick overview of the article, and a link for you
“Run For Your Life”…“Tread Water”…“Go All In”
By: Christopher Lee
Life in the real estate industry is all about risks
hiring talent, selecting partners, identifying investments,
incurring debt, terms & conditions, to pricing. Real estate
is a game of calculations, maneuvers, assessments, stra-
tegy and decisions. As T.S. Eliot said, “Only those who will
risk going too far can possibly find out how far one can go.”
Over the past 40 years, the real estate industry has been
defined (and maligned) by those who do not want to be
ordinary. The entrepreneurial risk-takers and the 10Xers,
as Jim Collins would label them, have been rewarded.
However, as we get ready for 2013, this time it is different.
This time the road less travelled may not be worth taking,
or maintaining status quo may have far more risk than
going all in. Opportunities seem hard to find because of
an increasing reliance on heuristics. Indeed, these are
uncertain times when selecting the right strategy can
be the difference between success and failure.
Knowing “what is next” or “what is around the corner”
can be a daunting challenge for those possessed by
dubitare (i.e. doubt/hesitation). Today we are at a tipping
point between more of the same and an era of endless
While the future of the real estate industry is assured,
the journey and how-to-get-there are in doubt. The
determination of success over the next five to seven
years will be based on strategy not tactics, actions not
theories, leadership not fellowship, psychographics not
demographics, and goals not hypotheticals. Now is the
time to shed cognitive bias and take control of your
destiny. Failure to develop and execute the proper
strategies ultimately will result in becoming Sisyphus
We have a fragile economy with an increasing probability
of becoming recessionary by 1Q/2Q 2013. We have
subdued expectations for economic growth. QE3, the
$480 billion fiscal rescue of choice, not necessity, by
the Fed ($40 billion a month until there is a substantial
turn in job growth) is a report card on the failure of the
current economic policies to revitalize the economy.
The Fed’s balance sheet has risen to nearly $3 trillion
from less than $1 trillion before the fiscal crisis. Re-
member that the Fed holds $1.64 trillion of government
debt (as of early September 2012), and as a result has
reduced government interest expense and size of the
government’s operating deficit ($1.164 trillion for the first
11 months of fiscal 2012). Today the Fed owns $1 out of
$6 of the national debt…the largest percentage in history.
Eventually interest rates will rise, and I expect by 2017 –
2018 net interest expense could rise to nearly 3% of
GDP…the highest level since 1948. The Fed’s QE3
bailout of excessive government spending distorts
reality, and real estate entrepreneurs are uncertain
whether to buy, sell or hunker down. Inflation risks
have increased with the QE3 decision.
We continue to muddle through an anemic economic
jobless recovery, and the 20 million or so unemployed
or under-employed Americans are becoming frustrated
and disillusioned. We have a Federal Reserve that,
according to many analysts, is “out of tricks,” and daily
we experience the results of political gridlock, unpre-
cedented deficit spending and the pending Taxmageddon
in 2013. While I expect a more traditional economic
recovery to begin in 2014, the current malaise is, unfor-
tunately, consistent with past real estate cycles.
what can one do?
What are the options and macro
trends to be considered for 2013 and beyond? Is this a
good or bad time to invest in real estate? Is this the best
or worst time to undertake growth initiatives? Is this the
best time to hire or maintain the status quo? Is this the
best time to accelerate new initiatives or curtail existing
activities? Is this the perfect time to sit on the sidelines
and wait for a more certain future or take advantage of
turmoil and chaos?
The answer to these and other questions asked by many
readers is the basis for this month’s issue of
I hope this information serves you. I look forward to helping
you reach for the stars!
This email has been sponsored by Mike Conlon.
Mike recently wrote a book, Unconventional Wealth.
He is offering our members a complimentary copy.
Get yours today by clicking on the banner below.
This message was sent to [email protected] from:
Value Hound Academy | 428 E. Thunderbird Rd. #107 | Phoeni
Uncover Hidden Value in Your Next Multifamily Reposition
|Posted on 25 October, 2012 at 1:56||comments ()|
Uncover Hidden Value in Your Next Multifamily Reposition
Use my secret weapon to find hidden value in your new multifamily
investment acquisitions. This tool (which can also be modified for
other asset classes) will help you find the competitive engine that
drives rents and valuation.
As part of your property analysis and evaluation on any new acquisition,
spend some time comparing your property to its competition. How
does your property compete? What are its strengths and weaknesses?
Is there an opportunity to create value by improving its competitive
position? What's the best way to reposition the property to increase
rents and valuation?
To help compare your property and keep the comparison focused, I have
created a tool that I use on ALL my new acquisitions and repositions.
Competitive Advantage Comparison
There are eleven (11) primary determining factors that potential apartment
rental housing customers evaluate before making a purchase decision.
Compare your property against the competition by using the eleven (11)
purchasing factors outlined in the following rating chart.
The analysis will compare your property to the immediate trade area
competition by rating each of the eleven (11) purchasing determining
factors on a scale from 1 to 5 with 5 being the highest score. Don’t
permit a score to go beyond one decimal point (3.5 versus 3.55). A
rating will be assessed for each of the eleven (11) purchasing deter-
mining factors among the competing properties.
For example, the first purchasing determining factor is curb appeal.
Curb appeal will be rated for each property with an average rating in
the right hand column under rating on the chart.
Compare your property with the other properties to this rating. Is your
curb appeal better or worse than the market average for curb appeal?
Continue this for the remaining ten purchase determining factors.
Finally, total the score of each property including your property. Com-
pare this total score to the other comparable properties and see how
competitive your property is within its marketplace.
When you finish completing the Competitive Advantage Comparison,
you will be amazed at the opportunities you will uncover - opportunities
to improve your new property to make it more competitive so that you
can raise rents.
In some cases, you'll find the property you are comparing will be the
most competitive property in the trade area, which for a value investor,
might not offer any value creation opportunities.
But for those buying a stabilized property, you will want to buy the most
competitive property in the competition set. This tool will help you find
You can download the Competitive
Advantage Comparison spreadsheet as a member of the Value Hound
Academy by clicking this link:
Watch the video I made explaining the Competitive Comparison
spreadsheet, which includes an examples comparison.
my Competitive Advantage Video.
I hope this serves you and I look forward to helping you reach for the stars!
This article has been sponsored by Mike Conlon.
Mike recently wrote a book, Unconventional Wealth.
He is offering our members a complimentary copy.
Get yours today by clicking on the banner below.