Monthly Archives: January 2011

Do You Suffer from Analysis Paralysis?

“The sense of paralysis proceeds not so much out of the mammoth size of the problem but out of the puniness of the purpose.”

–          Norman Cousins

Dateline:  Rocky Point, Mexico – March, 2010.  My business partner Manny Romero and I, along with a couple of buddies, headed four hours south of Phoenix for some sun, sand, golf and cervezas.  This would be our first annual guy-only trip – we called it a Mancation.

No detail was overlooked.  Manny set us up in an awesome resort condo right on the beach.  He booked our tee times.  I checked the weather – perfect conditions – and packed the cooler full of Pacifico beer.  The iPod was loaded up – Zac Brown Band’s Toes the first song on the playlist…

I got my toes in the water, ass in the sand,

Not a worry in the world, a cold beer in my hand,

Life is good today, life is good today.

It was a memorable trip.  We ate shrimp tacos and listened to mariachis.  I lost 17 golf balls in two rounds and nearly broke my 7 iron in half.  On Saturday night we jammed out to a cool Mexican rock band with a lead singer that looked like Jesus and had a voice like Chris Cornell.  All the while we barely noticed the college kids – it was spring break.  When Sunday morning came we wearily packed up the car with our golf clubs and empty cooler for the ride back home.

There was a wait –a very LONG wait – at the border checkpoint to reenter the United States.  It took more than three hours to get out of Mexico.  When I rolled down my window to greet the Customs agent he took one look at me, Manny and our two friends in the backseat and asked “what are you guys celebrating spring break 10 years later?”  I told him I considered that a compliment – we were actually celebrating spring break 20 years later!

Here’s the thing – we knew that our Mancation was the same week as spring break.   We realized it two weeks before we left.  Most middle aged men would have cancelled the trip, paralyzed by this new information.  Not us.  Our purpose was a good time, line at the border or not.

Analysis paralysis is an ugly disease.  It can kill a vacation or keep you from getting started in real estate investing.  Studying stuff like employment figures, vacancy rates, median incomes, economic diversity, contract ratios, median prices and absorption rates in your town is a wise thing to do.  Just don’t forget about your purpose – to make money.

Tom Ruff of Information Market and Mike Orr of Cromford Report know the Phoenix housing market better than anyone.  They have a way of analyzing complex data and drawing simple conclusions, without the doom and gloom.

In his January 2011 Housing Opinion Tom wrote, “We are living in the time after the crash, not the time before; Phoenix is now offering the same opportunities we saw in the early 90s. I haven’t heard anyone say, boy, I wish I’d have bought that home down the street in 2006 when I had the chance, but I’ll bet you, ten years from now when they look back at this unique time in history…”

In his January 16 mid month pricing update and forecast Mike Orr concluded, “So we see a generally gloomy picture for sales pricing and no sign of any improvement in the next four to six weeks. In fact we see continued deterioration. We do not get too concerned about this however, since sales pricing is a TRAILING INDICATOR of the market and is the last thing to show any turnaround. When we look at other measurements things are not so gloomy. This is because lower pricing results in increased demand which is certainly making its presence known at the moment.”

Remember your purpose.  Don’t over analyze.  Keep it simple.  If you can buy a home in this market and rent it for more than it cost to pay the debt service and expenses then you’ve made a smart investment.  If you can buy a home, fix it up and sell it for what you paid, plus another 12-25K in profit, then go for it.  Let the numbers guide you, not paralyze you.

Next week Manny and I will embark on Mancation II to Rocky Point – only this time we’re doing it Super Bowl weekend and are returning on Monday morning.  We’re expecting the line at the border to be much shorter this year.  What can I say?  Analyzing the numbers from last year’s trip I learned that we should go a different weekend.  I also concluded that I need to bring more golf balls and a spare 7 iron.


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When Buying an REO be Last, Not First

If you’re not first, you’re last!  That has to be one of the best movie lines of all time.  Yes, Talladega Nights is a movie about NASCAR and yes it’s a bit sophomoric.  But Ricky Bobby, the race car driver who patterns his life after these words is wise – in a redneck kind of way.

Nobody likes to come in last.  It goes against everything we are taught.  There is no trophy or medal for last place.

That is unless you’re buying a bank owned property.  It pays to be last.  In this video my partner, Manny Romero and I share three tips for getting the bank to accept a low offer.

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High Speed Chases and Before and After Pictures

O.J. Simpson and a white Ford Bronco.  It was June 17th, 1994.  The world seemed to stand still as the former NFL running back dodged cars, not linebackers, through the streets of Los Angeles.  Luckily, no one was hurt during the high speed chase.  Broadcast live on every major news network, the chase lasted more than 2 ½ hours.  By the time it ended most of the country was tuned in.  It was riveting television.

Coverage of the chase changed television history.  Afterwards news helicopters in every major media market were dispatched whenever police pursued a fleeing suspect.  Why?  Because it was easy to capture – but more importantly the high speed chase made for incredibly compelling drama.  The audience could almost always count on a crash at the end.

I’ve discovered that before and after pictures offer a similar experience.  How else can you explain the wildly successful American Idol and The Biggest Loser?  Over a period of 2-3 months the viewing public gets to watch a rapid transformation.  On American Idol, the common man or woman goes from an unknown karaoke regular to polished superstar.  On The Biggest Loser the severely overweight shed hundreds of pounds.  The change is breathtaking.

That’s why whenever possible we take before and after pictures of the properties we fix and flip.  Our investors are captivated by the process and it demonstrates our ability to create value. We remodeled this house last month.  Check out the slide show below.  In one of the photographs our contractor, Errol Spence, is standing inside a flooded bathroom.

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A few tips when shooting before and after pictures:

  1. Take your pictures during the daytime – and when shooting the after pictures try to take them at the same time of day.
  2. Shoot your pictures from the same angle.
  3. Concentrate on areas that have the most dramatic improvement.
  4. Use a camera with a wide angle lens.

If a picture really is worth a 1000 words imagine what 30-40 before and after photos could be worth to your real estate investing business.


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Buying Investment Property in Arizona – Part III: Seller Financing

He was standing by the side of Mormon Lake Road – about 20 miles east of Flagstaff, Arizona.  The man was looking through a large spotting scope.  It was pointed towards a tree line to the south of Mormon Lake.  He fidgeted with the focus ring and then walked to the back of his Toyota Highlander SUV to grab some more equipment.

My wife and I were driving by.  And we were curious.  What was he looking at?  I pulled up beside him and Linda hopped out.  It turns out the man was a birdwatcher.  He was keeping tabs on an osprey nest that sat in a tall pine tree at the edge of the lake.  Apparently the winged creature nests there every fall before migrating south to Mexico.

While the osprey is a beautiful bird and all frankly I was more interested in the guy’s Toyota Highlander SUV.  It was a hybrid.

What can I say?  I’m a guy.

As my wife sat there admiring the glorious majesty of the osprey I couldn’t help but wonder – did this man’s SUV get good gas mileage?  How much horse power did it have?  Could it tow a boat?  Was it worth spending an extra $4,000 over the gas model?  The birdwatcher later admitted to me that the numbers didn’t pencil out.  He bought the hybrid because it was the right thing to do.  Over the long haul the extra money he paid for it would exceed his cost at the gas pump.

Most hybrid cars are like that – they don’t make economic sense.

In the real estate investing world there is hybrid exit strategy that does pencil out – seller financing.  I call it a hybrid because seller financing is really like a fix and flip – buy and hold combination.  Let me explain it to you by breaking down a deal my partner Manny and I just closed last month.

We partnered with an investor that had a self-directed IRA and purchased a bank owned home for $120,000. It cost another $25,000 to fix up the house.  We sold the home to a buyer and did what is known as a carry back for $225,000.  The buyer put $10,000 down and is paying us 9.95% interest.  The loan is amortized over 30 years but will balloon in five.  Here’s a breakdown on the numbers:

  • $225,000.00 sales price
  • $145,000.00 purchase price and repairs
  • $  80,000.00 spread
  • $114,000.00 interest paid over 5 years
  • $194,000.00 NET PROFIT = our investor’s share of the profit  equals a 13.4% annualized cash on cash return

We make money up front with the down payment – cash flow for five years – and a large spread at the end when the buyer refinances or pays us off.  There you have it – a hybrid that makes money.

But here’s the catch – you have to find these buyers.  They’re not working with Realtors.  Why?  Because most Realtors don’t know what seller financing is and sellers don’t usually advertise on the multiple listing service.

We get our buyer leads from Craig’s List, our website and radio ads.  We’ve had more success finding the buyer FIRST and then locating a house that meets their needs.  This is easy to do right now because of all the bank-owned properties on the market.  As I sit here today we have six buyers waiting for us to find them a home – they are all well qualified with $10,000 or more and solid income.  The only reason they need us to finance them is because their credit is dinged up from a recent short sale and/or foreclosure.

What more could you want?  You get an above average return without the leaky toilet in the middle of the night phone call from your tenant.  With the extra time and money maybe you could take up bird watching.

Check out this video to learn more about our seller financing business model:


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