Financial Glass

For over a year I’ve been looking at Duplexes and even single family properties in Fort Myers, Lehigh Acres, Cape Coral, & San Carlos park trying to find an investment property. I was looking for a deal where I could live in one side and rent out the other in the short term and long term ultimately move out and rent both sides. I’d had a few properties under contract and went through the inspection process, but each time something didn’t work out.

I began to get dejected and that is when I eventually settled on a piece of land where I knew the cost to build had surpassed the cost to buy an existing property. I had been working with a builder when the real estate agent I had been working with this entire time came to me with an off market deal. It was an older and smaller duplex, but it was in a better area and in the best condition of any of the properties I had been looking previously. So I went for it and have had the property under contract now for $185k and the property appraised for $190k.

The process has been interesting thus far and today June 26th is the day I was supposed to close. Well after a brief scare of termites – which turned out to be nothing and lots of issues with the lender & title company using slightly different addresses (careful with a duplex). The lender has finally signed off on the closing and we should be good to go for Thursday June 29th.

I’m excited and nervous to finally be closing and hopefully will have an update on how the rest of the process goes once I’m through the final stretch. I’ve learned a lot thus far and cannot wait to finally have an investment property that I can start building wealth through. Initially I won’t make any money, but my mortgage will be paid for and I’ll only have to cover taxes, insurance, & expenses while I live there.

There are some cosmetic value add opportunities through landscaping and a few other minor changes that can be made. I hope to use this to generate cash flow and if the market continues to rise take my appreciation and roll it into a bigger property, either through a refinance or full cash out. The numbers I did are based on a buy and hold strategy though so regardless of what the market does I will still generate income. Once the deal closes I’ll post the official numbers on the property.

I am currently reading a book called Good to Great by Jim Collins. It is about public companies that have produced great results relative to competitors starting in similar positions and the stock market in general. It attempts to boil down a formula for why some companies and leaders are great and how a company can work towards achieving greatness.

I’m almost done with the book and have garnered insights around creating a “hedgehog” mentality and focus that will ultimately lead to greatness. In essence Collins is saying the great companies who were able to produce extraordinary results had a narrow focus based on 3 principles:

1. What you are deeply passionate about?
2. What can you be the best in the world at?
3. What drives your economic engine?

At the center of these 3 things is what ultimately leads to a hedgehog mentality that set up great companies. There are other factors that I think resonate throughout the book and takeaways around leadership, building a great team, facing hard truths, and creating a culture of discipline to name a few. Ultimately I think this concept of a hedgehog mentality is applicable not only in business but your personal life.

I like it much better than when growing up you are told to follow your passion and the money will come. Or what is the #1 thing that you are passionate about. That is a challenging question for anyone to answer because we are all passionate about different things at different points in our lives. Being able to recognize not only what you are passionate about, but also to start defining that based on the other two questions allows you to create more meaning and purpose in your life.

For example, I am passionate about real estate. Can I be the best in the world at real estate? Unlikely. Now I currently do technology sales and am passionate about the impact my company has on our clients. Can I be the best salesperson and advisor to my clients in the world? Possibly. What drives my economic engine? It is driven by me consistently delivering value to clients and converting potential customers through exposing them to how my company can help them solve their business challenges.

At the center of those 3 metrics I can find my hedgehog focus for the near term. – Long term I am focused on defining my real estate ventures further that will allow me to come up with a Hedgehog mentality to be the best in my niche.

My last deal update I mentioned that it turned out to be a land deal on 1/4 acre lot that I planned to build a 3bed/2bath single-family home as a buy and hold. Let me add some additional context to the story. I had been looking for duplexes for quite a while when I finally started seeing how cheap some of the lots were in the area I was looking to purchase. Plots going for $4,000 up to $10,000 that were zoned either residential or residential/small multi-family (to clarify buildings that are between 2-4 units are considered small multi-family).

I am in Southwest Florida in the Fort Myers area and after the crash of 2008 development all but stopped because of the large number of foreclosures and inability for anyone to purchase all of these vacant homes. Slowly things turned around over the next 5 years or so, but almost no construction was really taking place at this time for affordable and basic housing. As such there is currently a boom in construction as the economy has improved tremendously since that time.

With the market improving and prices starting to creep up to the 2007 levels new construction is just about cheaper (depending on land acquisition, location, financing, & builders) which is why I started looking at land. I talked to a few builders and got an idea of what they were building new construction for in the area and assuming I could acquire the land right then it made more sense to build a brand new property than buy a rundown overpriced property.

Now a lot of investors have networks of wholesalers and brokers that will help them find off market deals or bargains. The issues is I don’t have that network at this point nor do I have the cash to buy a rundown property outright. It’s challenging to get bank financing on a rundown property as a new investor. This left me with a few choices, but finally I found a piece of land in a nicer area that once had a home on it. Based on my calculations from builders, I moved forward.

At this point I have narrowed it down to one builder and am working out the contract piece. I’ve also identified lenders that will non-owner occupied new constructions (this is a challenge to find currently, but they do exist!) and have narrowed that list down to 1 I like. At this point I am waiting for the contract from the builder to start moving the process forward.

Saving retirement is one of those topics that everyone thinks about as a distant dream or goal until it is almost upon you. The only people who like talking about retirement are financial planners and those with strong opinions on the matter.

401ks, IRAs, Roth IRAs, & Roth 401ks are talked about a lot and there are pluses and minuses to each of them. The vehicle you utilize to save for retirement will differ, but no one talks about other vehicles for retirement savings. Specifically I am talking about assets that appreciate in value AND provide a return on the money invested.

Real Estate… if you haven’t noticed it is one of my favorite vehicles to research, discuss, and invest for both wealth creation and preservation.

Warren Buffett is quoted as saying about investing,

“Rule number 1. Never lose money Rule #2 Never forget Rule #1.”

I find that when it comes to finding investment opportunities that have the potential to be a long term vehicle for wealth creation (retirement and beyond), it is hard to beat real estate. If you buy an investment property – something that puts money in your pocket every month, you are likely to abide by Buffett’s 2 rules above.

Purchasing a residential or commercial property that someone else or multiple people/companies pay to rent from you every month is a great vehicle for wealth creation and preservation. The key is it is someone else paying for the mortgage through rent, not your own personal residence. As long as you don’t over pay and the rent covers your mortgage, expenses, and capital reserves (for emergencies) you will make money. Focusing on what is called the cash flow or the difference between your rental income and your expenses you are in a good position to have success in real estate.

The real estate bubble in 2008 occurred in part because people naively believed that real estate prices will always go up. While it is true that over time real estate prices will likely rise to keep up with inflation – there will be peaks and valley as the local, regional, and national markets change overtime. So focus on the cash flow versus the potential for appreciation because appreciation is not guaranteed and you can control the cash flow by increasing rents and cutting expenses (according to how you buy the property, location, and market). The key is you have the control in this investment which provides you more flexibility and growth opportunity.

No investment is a sure bet, but when you analyze the wealthiest individuals many got wealthy through real estate and those that had success in areas diversify in real estate to preserver and create additional wealth. So next time you think about your retirement vehicles, don’t forget about real estate as an opportunity for you to retire young off the cashflow of your properties. Also don’t let your stock broker or financial advisor tell you to just purchase a REIT (Real Estate Investment Trust) which is traded like a stock, but is a stake in a real estate investment company. These are great, but you lose out on the benefits of personally owning and controlling your own property.

A big piece of my journey is continually consuming content that will educate me, motivate me, and help me view the world differently. I utilize books, podcasts, videos, and meet-ups in order to accomplish those tasks. There are people more successful and smarter than I am that have left pieces of wisdom into their process to follow. Some of the recent content I have been consuming include:

Podcasts-

The Bigger Pockets Podcast – this is a real estate investing podcast where the hosts bring on different real estate investors and motivational business leaders. The BP hosts interview the guests about their successes and failures all of whom have varying levels of experience and success in real estate. I love listening to the strategies that different investors employ and the value they create through their investments for others. They also have a forum at Biggerpockets.com to ask questions that is a valuable resource.

The Cardone Zone – this is put on by Grant Cardone who is a more sales focused and less philosophical Tony Robbins. Grant is focused on discussing different topics around finance, career, and motivation. His content and message is centered on creating more income and focusing on expending energy to grow streams of income. His message is simple figure out how to get more money in the door.

The Investors Podcast – this podcast is more focused on your traditional ideas of investments around the stock market and what is happening in the global economy. They host different thought leaders or review books by billionaires, discussing the key takeaways. It is a bit drier in my experience and can be more advanced if you are new to a lot of financial terminology.

Books in the past few months –

Who Moved My Cheese by Spencer Johnson, M.D. – great book about adapting to change and recognizing when you are ignoring it in your life. It also is a super short read.

Set for Life by Scott Trench – this is a Bigger Pockets published book and I found it very good, but definitely focused on beginners. If you are just getting started it is a good read, but Scott himself is still early on his own path to financial freedom which reflects when you compare it to other similar books written by millionaires.

Black Swan by Nassim Taleb – this is an economics book that is verbose and I would not recommend to those not very interested in economics and philosophy. The key takeaway is about Black Swans – the unforecastable and unpredictable events have the largest impact on our lives. How do you prepare for the unexpected events in life.

The Intelligent Investor by Benjamin Graham – A classic economics book written by Warren Buffett’s key influencer. Graham discusses his concept of value investing – buying a security (stock) that is trading for less than its intrinsic value. For example – I have a Gucci wallet worth $100 that has an additional $50 in cash. For some reason people are selling this wallet for whatever reason (maybe Gucci isn’t in style or they like Coach better right now) at $90. You know that the wallet is actually worth $150 so you buy it for $90 and have an asset worth $60 more than you purchased it. That is the concept of value investing as simply as I can put it.

These are just some of the recent podcasts and books I have been reading. I also listen to the news on the radio to work and consume interesting articles on major newspapers.