Are You A Flea?

Some time ago I was told about a study done to test the limits of fleas.  As the story goes, a box was filled with fleas in an attempt to watch what they would do when placed in a large box.  They immediately started to leap about within the box.  Within a short period of time, they begin leaping to higher levels until they discovered they could leap out of the box seeking their goal, someone’s legs.  This was repeatedly done time-after-time.  The fleas quickly learned they could easily leap out of the box.

Then a clear sheet of glass was placed on top of the box. As the fleas attempted to leap out of the box you could hear them hit their heads against the bottom of the glass.  Jump, tick… jump, tick.  Within a short period of time the ticking stopped.  The fleas, tired of beating their heads against the glass ceiling stopped leaping as high.

After awhile the glass sheet was removed from the top of the box and when placed back into the box, all the fleas jumped about but never leaped out of the box!

The other day I was asked by a friend, “Chief, when is enough, enough?” My immediate knee-jerk answer was, and has always been, never!  But I knew that the simple single word “NEVER” was not a sufficient enough answer.

I have always found it strange that when it comes to money, people always seems to feel that there must be some limit, some glass sheet if you will. But I’ve always asked myself, do those same people ask others when enough is enough?  Does the marathon runner get asked when enough is enough?  How about the famous author excited about penning another great novel?  The artist about to paint another exquisite work of art?  The composer with yet another musical score in her head?  Or the doctor willing to save another life?

“Dr. Jones, when is enough, enough?  Just let this one die.”

Yet when it comes to money, somehow there seems to be “enough”.  No way!  I call B.S.!

If you have kids you never forget their first steps.  Can you imagine your child attempting to take their first few steps and then saying, “okay, that’s enough”?

Then they learn to run.  It’s the funniest darn thing to watch their first gawky attempts to run.  I call it flinging limbs!  But no, hold on, enough is enough.  No need to run.  You’ve tried it a few times and that should be adequate.  Here’s your sheet of glass.

Heaven forbid should your child even think about entering into the 50 yard dash… run a mile… join the cross country team… that’s clearly enough.  What?  You want to enter a marathon… are you crazy?  A triathlon is clearly out of the question.  And an Iron Man… well… you need to be institutionalized for such nonsense!

You need a much thicker sheet of glass.

Okay, Okay, you get my point.  Doesn’t this all sound ludicrous?  But wait, let’s look back at money for a moment.

For some reason society has placed an enormous glass sheet above those who strive to make more money. Well, here is a little insight…

It’s not about the money!

The people who ask the age-ol’ question, “when is enough, enough?”, don’t understand that the “money” is nothing more than the score card!

Let me ask you, how fun would the Olympics be without the time clock?  “Well ladies and gentlemen; we have another exciting winter Olympics to share with you.  The mens’ downhill.  We have several men going to sky at ridiculous speeds down a hill until they stop.  And, well, that’s it.  Medals will once again be handed out randomly to anyone that reaches the bottom.”

WHAT?!?!  Are you crazy?!  No clock?  No time element to determine who was fastest?  Without the clock, I don’t even know how fast they are going!

Ah, but when is enough, enough?  Never… IF, (and here comes the “if” ) , if the rest of your life has meaning.  To put it another way:  if your pursuit in any endeavor leaves a wake of destruction, then your pursuit of the gold, or gold metal, needs to be reassessed.

Everything in life has a score card. How well you are doing at work, how well last night’s dinner tasted, how this morning’s workout in the gym went, the conversation you shared with your child after school, to how much money you made this week.

For me as an investor, it’s really about the deals.  I get excited about seeking opportunity where others do not. To wake up and “get to” playing my game to its highest potential.  Like the Olympics, as a real estate fund manager the hurdles are different, the competition is intense and my clock is how fast my investment fund can turn properties for a profit. Ah, there is that clock element again.

My gold-silver-bronze are the profits we make for ourselves and our clients. Money, the simple score card, the reward for years of dedication, courage, focus and the relentless pursuit of success.  The best part you may ask?  As an investor, there are more than just three winners in the world!  Our investors win, homeowners win, the community wins, 100+ people who work for us win, their families win, and my family wins.  So why on earth should a limit be placed on success when so many people’s life’s are touched in a positive way?

Much like in school, life’s report card has more than one score, one grade.  We are being scored/graded in all areas of our lives.  Several “A”s and a few “B”s can all be overshadowed by that one fat ugly “F”.

One of life’s greatest challenges is the constant diligent strive to create for ourselves, and our families, an outstanding report card.  To insure all the areas of our life are being attended to.  The constant juggle of trying to keep a well-balanced report card.

Life’s greatest gifts and experiences exists beyond the box.  Remove the glass sheet of limitation, have the courage to leap beyond yesterday’s limits because there is never enough life to live.

Are Short Sales A Smart Play For Investors?

I read an article recently by a fairly experienced real estate agent who was touting Short Sales as the best way for investors to participate in the current market.  The basis for this belief was that short sales provide investors with a low risk way to insure against major changes in the condition (of the property) or in the market, while still retaining the choice to buy.  Hmmm…

I’m not going to knock short sales in general.  I won’t do that simply because I have been around real estate investing long enough to know that you can’t use generalities or broad strokes to determine if any one strategy is good or not good.  Theory doesn’t work in real estate investing; facts and numbers and research are what work to determine the best “play” in any given market and specifically within subsets of the market.

I actually do know quite a few people who have been successful with short sales in today’s market.  But here’s the caveat, most of the people I know who make a ton of money off short sales are the real estate agents who know how to work the system and get their short sales SOLD (and in turn earn their commissions).

As an investor, I have a few issues with pursuing short sales.  And a few problems with the proposition that short sales provide low risk and the ability to be in control.

First, the only way to be successful in real estate investing is if you buy at the right price and/or sell at the right price to make a profit.  If your money is not actively earning you a profit because you’re waiting around the 6 (on the extremely optimistic side) to 18 months (on the very realistic side) it takes to get a short sale done, then you are not aggressively participating in the real estate market. Your money is sitting idle somewhere.

In essence, you’re waiting around to see IF your offer will be accepted.  I do agree that this allows you to exercise control by electing not to go through with an offer if the condition of the property changes or the market continues to decline.  But, in the meantime, you could have been pursuing other deals that were purchased and sold for a profit or rented for cash flow.

What good does it do to minimize risk and be in control if you’re not earning money?

Second, there seems to be a perception that buying a property in a short sale means that you’re getting a wholesale price. This is the same perception that gets inexperienced investors in trouble when they get all giddy about buying properties at an auction house.  They get caught up in the frenzy and excitement of the bidding process and fail to realize they’ve just purchased a home at over 90% of its current market value.  I don’t know the exact number but I have heard that the properties sold at auction houses (not to be confused with properties sold at courthouse auctions) typically do go for well above 90 cents on the dollar.

Realistically, with a short sale you are paying less than what the current owner paid (thus the term short sale) but you are, more often than not, paying the full market price.  Now that may be okay based on your exit strategy, but if you’re flipping for profit and paying full retail then this would be a disaster in the making.

The other thing with short sales is that they can and do affect the overall market value of properties in the neighborhood.   So, if you are successful in getting a wholesale price accepted on the property you are purchasing,  you can bring down the value of the immediately surrounding properties.  If your objective is to flip, you may have just shot yourself in the foot.  You pay less now, but your neighborhood will have felt the negative effect of the price that you secured in your offer.  This is not necessarily a problem if you are using a hold strategy.  If you’re selling for a profit however,  you may have to wait longer for your value to bounce back.

I like any strategy that allows an investor to buy low and sell high. I’ve been fortunate enough to apply this strategy for over twenty years, through up and down markets and always come out making healthy profits.  The past year and a half we’ve been doing that through properties purchased at the courthouse steps.  We do a lot of research to ensure that we only walk away with properties that are secured at a low enough price point that we can turn a profit for our investors and ourselves.   And in comparison to short sales, we can be in and out with our money in less than 120 days, with a nice profit check in hand!  If we were doing short sales, we’d still be sitting around waiting to see if our offer was accepted and the deal was closed.  Heck, we can buy two properties and generate profits twice in the time it takes to do one short sale.

Short sales just don’t seem like a smart play to me if your objective is to make money as quick as you can in today’s market.    And I don’t know about you but I like my money just as fast as I like my cars!