Recently I was reading Tim Ferriss‘ blog on Rethinking Investing. I was sickened to discover Tim was voting for Obama, but he had a great point on investing from Mark Cuban.
I currently have less than 10% of my net-worth in stocks. Why? I don’t have an “information advantage”. If other words, I’ve seen the sharks in this ocean, and I want no part of it. They’ll eat my Barron’s-reading ass alive. I’d rather put my capital in angel investing and the few industries I understand, two areas where I have insider knowledge and connections that others don’t.
To quote billionaire Mark Cuban (great blog here) in his short interview with Young Money (YM) magazine:
YM: Do you have any general saving and investing advice for young people?
CUBAN: Put it in the bank. The idiots that tell you to put your money in the market because eventually it will go up need to tell you that because they are trying to sell you something. The stock market is probably the worst investment vehicle out there. If you won’t put your money in the bank, NEVER put your money in something where you don’t have an information advantage. Why invest your money in something because a broker told you to? If the broker had a clue, he/she wouldn’t be a broker, they would be on a beach somewhere.
Here’s the deal — to beat the market consistently, you have to: 1) have better information than most people, 2) have superior analysis of the same information, or 3) have better luck than a Leprechaun.
Discarding luck as a strategem, and personally discarding better analysis because I don’t want to spend my life poring over annual reports or evaluating algorithms, there is a simple conclusion: don’t invest in anything that you don’t know inside and out better than most of the world.
I met with some new investors last night and something funny happened. The video below says it all. We were at Niko’s Lodge, which is across the street from my house, so I called Bryan to come over with the camera so I could get this on tape. Cash truly is king, and the reason we win bids and win them at great prices.
We will be sponsoring appetizers at Niko’s in a couple weeks if your interested, please contact me for details. It’s a great restaurant and will be a fun night.
I’m sure you are panicked at this point. The banks are barely lending. The Market has crashed and the media is talking global depression. The Dow is at 8,134 as I type this. So what am I doing? I am bidding on 20 homes. Mass Hysteria has provided and incredibly opportunity for Mass Consumption of undervalued assets. Nobody can predict how far the market will fall or when the falling will ease. Many people have lost 1/3 to 1/2 of your savings. Don’t jump off any buildings yet. You can recover. Recover by buying REAL assets that are undervalued and creating cash flow now. My average home lately provides $30,000 in equity, $20,000 in cash and $150/mo. in cash flow. What are you waiting for? The illiquid nature of real estate is GOOD. It keeps prices from falling off the planet. In addition, these homes have tangible and real value. Consider the replacement costs or the income approach to valuation when you buy an asset. Many of you may not know this, but I have been licensed with a 6 and 63 in my previous life as a banker. I could sell insurance, and mutual funds. I quickly got out of that line of work for one simple reasons. You can not sell what you don’t believe in. I was not successful with these licenses as my heart was not in it. Real estate is in my blood. It’s my calling. It is my passion. While others often go to a job for a paycheck, I eat, sleep and breathe this business. I live it. You may struggle through a project or have a horrible transaction (we all have), but if you stay the course and build a portfolio, you will likely create an incredible amount of wealth. You can not rent stock. In panic sell offs, the little guy gets crushed. Many of you may have gotten crushed, fret not, because there is opportunity everywhere. We have locked up 15 projects in the last week. We can not possibly send out every home we get. We do our best, however many hungry investors gobble these homes up before we can even send them out. Contact my office if you’re ready to take advantage of this market, rather than let it take advantage of you.
The difference between my office and all other companies is simple, and here is the proof. (Literally, the Proof of Funds). It’s now $1.6M.
Buy Low, Sell High. This is the low my friends. In time of crisis I leave you with this poem:
IF
If you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;
If you can wait and not be tired by waiting,
Or being lied about, don’t deal in lies,
Or being hated, don’t give way to hating,
And yet don’t look too good, nor talk too wise:
If you can dream-and not make dreams your master;
If you can think-and not make thoughts your aim;
If you can meet with Triumph and Disaster
And treat those two imposters just the same;
If you can bear to hear the truth you’ve spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to, broken,
And stoop and build ‘em up with worn-out tools:
If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss;
If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: "Hold on!"
If you can talk with crowds and keep your virtue,
Or walk with Kings-nor lose the common touch,
If neither foes nor loving friends can hurt you,
If all men count with you, but none too much;
If you can fill the unforgiving minute
With sixty seconds’ worth of distance run,
Yours is the Earth and everything that’s in it,
And-which is more-you’ll be a Man, my son!
-Rudyard Kipling
You may be shocked that my typical comments on the stock market have come a day late. Yesterday’s stock market fiasco was the worst in nearly 7 years…and you thought real estate was bad. The point, I try so hard to make with investors is that real estate is often more “secure” than your standard 401K and IRA options. This is counterintuitive to what you may believe and is certainly counterintuitive to what you hear from the media. When I discussed with my dad early on in my real estate career, my vision was simply to do something I loved, while being profitable. My original visions of becoming a custom home builder never happened, largely because my dad convinced me that the low end was far safer, which I now believe to be true. I could never leave the comfort and safety of low end real estate. If you can’t sell your $1M spec home, chances are you’re stuck. As a builder, you need to constantly acquire new land and build new homes to make money, while being an investor, you can buy 1 project and make money for a lifetime. I wanted to create enough wealth to retire extremely young and enjoy life during the process. While being licensed to sell insurance and mutual funds, I never felt that I could sell the product because I didn’t believe in it. I did not see anyone getting rich, or even getting a decent return except for the asset managers. On the contrary, I see many of my real estate investors doing very well. See, the particulars of our success are extremely fundamental. Everyone needs a place to sleep. Does everyone need stock? No. You can’t rent your stock out and you’ll have a hell of time using a bank’s money to buy stock, so the beauty of leverage is out for the most part.
The most idealistic investors focus on the flip, but their eye is not on the ball. My program has been rooted in the HOLD since I started. If you want to make a quick buck, flipping is a neat concept. I’ve flipped before, many of you have as well. That is a great little injection of capital from time to time, however if you’re like me, you’re likely trying to replace your income with rents. That’s right, the good old fashion landlord routine. And yes, it involves a little risk and a little work, however the rewards can be incredible. If you’ve met me before, you’ve probably heard me say that Donald Trump is not a flipper. He’s an investor. While I’m not a huge fan of Donny’s, the point helps new investors realize that the old fashioned hold is not all that bad after all. True investors hold and recapitalize at the right times. Selling in a down market is nuts, especially when you consider that rents are through the roof and rates remain relatively low. The market is dictating hold, so I hold.
The most important component that differentiates real estate from traditional investment strategies that are so ingrained in our psyche, is the fact that there is a plan B. What started out as my plan B, holding, has now become my A game. There is an inverse relationship between values and rents. Chances are that you’ve owned homes in hot markets and cold markets. This year is a “cold” market with regard to value, however my rent roll has never been stronger. Nearly every home I have rents extremely quickly and at peak rents. The 2005 hype is gone. Flippers quit, yet investors are buying with both hands. I’m not overly concerned with a 10% decrease in values. First of all, I (and my investors) have likely purchase the home for 50 - 70 cents on the dollar, so a 10% hit in value still allows us to have incredible equity positions. It’s important to mention here that my cash flow has exploded. My rents are 10 - 25% higher in this market than they were in past “good real estate” years.
The best way I can explain the root safety in my program is with a teeter totter example. When prices go up, we create equity and have the ability to sell at profits. When prices fall due to increased rates or credit tightening, our rents go up as demand increases for affordable houseing. This, of course, allows us to have the opportunity to cash flow. Provided you stay in the first time home buyer market and stick to the basic fundamentals, you likely won’t get too hurt. In fact, you’re likely to do extremely well by sticking to the basics. My fundamental teeter totter approach is basic, but it works time and time again. If there were a better way to create this much wealth with this limited effort, I would find it, sell it or invest in it. I stick with low end real estate for one simple reason, it works. It works in good economic times and in bad. It is not an accident that I have (and likely always will) stuck with “first time home buyer” homes. It is an extremely well thought out plan that has proven itself in good and bad markets.
I tell people that question the risk element of real estate, if you’re risky, keep buying stock. The last 10 year has been a good indicator that the risk associated with the stock market is extreme in comparison to real estate. All the while I’ve been buying little pieces of the American Dream and chipping away at retirement. It’s closer than you think. There are no doubt more responsibilities associated with real estate. Just this last year, I have had a home burn down, and another get hit by a truck. Both equity positions were lost. This was a stressful and painful experience, however by staying with my strategy of accumulation (or mass consumption), I have made up the loss in just 1 or 2 new purchases. Where many folks go wrong, is they stop accumulating. There are times to re capitalize your portfolio. Sell some (not now) and buy some new projects. When talking to my very first investor the other day, he mentioned that he had been stagnant for some time and that it was time to get back in. I expressed how incredible the opportunities are now. Don’t hesitate. Managing 10 properties is not much different than 3. At 20+ you’ll need assistants, management or some sort of help, but I had a full time job and 15 homes at one point. It’s doable, and I see no viable alternative with this type of return.
I’ve thrown in a clip of a home of mine that burned down. I lost the equity position which was tens of thousands of dollars. I wanted to clarify that my tag line of “Expect Maintenance, Expect Issues…” was derived from my own difficulties. In the same year as this fire, I had a home that was destroyed by a truck that smashed into it. It’s never fun to lose equity, but the truth is that my insurance kept me from losing everything. There is no insurance for your mutual funds. This business has a fair amount of hurdles, but it’s been an incredible wealth builder for me and it can be for you as well, if you’re willing to work at it. Enjoy!
So you’re sick of the cash out refinancing? So am I. While it’s certainly worth it to utilize the bank’s money in these projects, it’s not always a fun process. Our new construction financing program will blow you away.
Our new program is based on 80% of the END value and will be available up front. I have 2 commercial banks that will allow you to finance my projects this way. This program is limited to our projects. Here are some details from one of the banks. The loan functions like a construction loan and will provide your funds for rehab up front in the form of an escrow account.
It has taken me 10 years to establish the credibility to provide this program, but we have it in place, not only with one bank, but 2. I couldn’t be more thrilled!!!
First Choice Bank (Cash Out Refinances) - 630-845-0500 Joe Cantu
Algood Mortgage (Cash Out Refinances) - 630-330-8000 Scott Algood
Earthmover Credit Union (No Cost Home Equity) - 630-966-2307 Stephanie Thompson
Park National (Home Equity Loans to 90%) - 847-428-3636 Jenny Wagner
Citizens Bank (Home Equity Loans 80 - 90%) - 630-585-9900 Althea Fogarty
The following contacts can be very helpful with refinancing investment property!
As you know, we’re always looking for new ideas to help our clients to build equity and wealth as quickly as possible. One of our fellow investors and licensees has uncovered an opportunity that can do so on our primary and investment residences. The software that he utilizes through a company called United First Financial has cut his time to pay down his primary mortgage and be debt free from 27 to 8.2 years. He will also save over $210,000 in interest by doing so.
Most importantly, he didn’t have to refinance his mortgage, his monthly payment didn’t change, and his household budget didn’t change at all. Sound too good to be true? He thought so too until he put the software to work for him last year and the results have been amazing!
We’ve attached a recent article published in Personal Real Estate Investor Magazine that praises this software and outlines how the concept works. You can also click the link provided to the UFirst home page that offers additional information.
If you’re interested in learning more about how to effectively leverage your existing income to kill the front loaded interest associated with home loans on your primary andinvestment properties, you should contact Marty Loughlin at 815-690-3810. His email is mloughlin530@yahoo.com.
Investors are always struggling with finding banks who understand foreclosure investing. My investors tend to have great success with Banks who understand my process. The reason? I spend countless hours meeting with banks and appraisers to explain our program. After nearly 8 years in the business our track record speaks volumes. At this point, we have banks competing for our business. Currently we have several banks that will provide my investors a 90% home equity loan on investment property. This program is VERY competitive in a VERY conservative market. It’s important to understand our process and experience when working with banks and appraisers. No matter how much success we display, appraisers tend to be conservative in order to protect themselves. My front end research regarding comparables should more than justify our numbers. In any market, good or bad, we do our homework on the front end to justify our values. Every house we send out, will come with comparables homes that have sold recently. Many appraisers will need to see these comps and consider them when preparing their appraisal. Many appraisers will mistakenly provide comparables that were also sold in foreclosure. This is an extremely common and a grossly inaccurate practice. Appraisers need to consider the rehab that was done to the property. They also MUST look at recent, sold comparables. When these 2 things are considered, our process is very accurately displayed through the appraisal. If you ever have an issue with an appraisal, call us! We will fight on your behalf to defend our accurate values and assist you with the explanation of our values to the appraiser. We can also refer you to appraisers who have experience with foreclosures. If a retail (often conservative and inexperienced wtih foreclosure) appraiser is involved, the appraisal will inevitably be inaccurate. I highly recommend using an appraiser with foreclosure experience. Call us for the name and number anytime you are working to cash out refinance a property or obtain a home equity line.
I was contacted by Caroline Kim in response to the media frenzy surrounding foreclosures. Check out the article here.
The article was great, but there are some miscommunications…I do not fault Carolin one bit however, as I do speak pretty fast and the interview must seem like a million numbers being thrown around. I have not personally totalled 150 foreclosures, I sold 150 foreclosures in 2007. I personally have owned up to 31 homes at once, which is quite a lot to manage. Currently I own 15 homes, 5 of which are under contract for sale. The final comment is perfectly accurate however…I don’t have a single stock, just cash and houses!
