I recently had the privilege of taking Barry McGuire’s course on starting a real estate business outside of traditional buy-and-hold.
As you are probably aware, I am a huge proponent of buy-and-hold, my portfolio ATM is buy-and-hold. Starting down this path 7 years ago is what is allowing me to leave a secure job to follow my desire of being a “present parent”(Mr Mom).
Anyway, I used to shun anything not buy-and-hold as risky, ironically following Barry’s advice I had heard in my early years of investing. I knew people were making money in other ways, but I wasn’t ready to explore anything else until Barry started talking about alternative real estate investment deals coming through his law practice. When I saw this course being taught by Barry(who I hold in very high esteem), I knew I had to check it out.
Although I could never reproduce the depth of information from 3 days of instruction in this short blog post, here are some of the gems I learned:
Like most good courses, there was an element of personal development.
Without a good enough reason to move off the couch, I truthfully would prefer to watch Netflix all day. Way more than getting up to doing any extra work(paint a fence, advertise an upcoming vacancy, look for new deals, write a blog post etc…)
I think most people are like this.
To overcome this common obstacle Barry got Russell Westcott to host most of the event, and he started by asking us “In the next six months, what has to happen for this event to be a success for you.”
My answers were as follows:
- Earn $100,000 in PERREN PROPERTIES INC
- Create an active business with good dealflow(1/mo)
- Lifestyle: meaning I work 3 days a week out of the home(Thurs-Sat) for no more than 8 hours per day. Of course I work from home or remotely A LOT – during nap times or when kids go to bed – but I want the time I HAVE TO SPEND outside the house limited.
- Marcy’s car paid off($15,000). This seems funny but it popped in my hear for some reason so it must have been bugging me on an unconsious level so I wrote it down.
Once everyone was done, Russell used the principals from The One Thing by Garry Keller to help us narrow things down. “What’s the ONE Thing you can do such that by doing it everything else will be easier or unnecessary?”
My One Thing is as follows(be prepared, it sounds a bit flaky, but truely resonates with me).
My One Thing is #3, and it means I will have a rock solid family: emotionally, spiritually and financially.
Once you figure out your “One Thing”, it will drive you to do whatever it takes to complete it. I know mine does for me.
Briefly on JVs
Afterward, there was an introduction to Joint Ventures. I was a bit disappointed on the amount of time spent here because I thought this was an advance course. JVs are explored in depth in this home study course – which was free bonus as part of this course!
In any event, it was a good refresher. The best thing was a script that was shared by Sherilynn Milsom to justify a 50/50 split. Believe it or not, people who have money think that entitles them to more of the deal, your job is to educate them that your TIME is as valuable or MORE than their money. It’s all about context, check this script:
“YOU are not the one going to court. YOU are not the one dealing with the crazy person at the courthouse. YOU are not the one spending your time, brain power and emotional energy fixing a problem. While you get to simply write a check, I’m working my butt off to fix it.”
“I gave up time, money, family to become and expert in this. That’s why I’m worth 50%. I don’t make any money unless you make a bunch of money, and although I’m a nice guy I don’t work for free.”
Another good piece of advice was to check out Greg Head’s “JV Matrix.”
There are many ways to get in and out of a property.
A key insight to this entire course is that there are MANY ways to buy a property with very little money, here are a few and what situations they are best suited to:
- Agreement for sale: Best suited to low equity or no equity situations. Tell sellers “I can’t give you any money because there is none to have.” Sellers motivation is to avoid forclosure(VERY bad for credit), and/or for realtors fees(7% on first $100K/3% on the rest), mortgage payout penalty, legal fees. In BC the Quickturn operator(you) must pay Property Transfer Tax unless doing a complex/rare transaction called a Skip Transfer/Simultaneous Close. Money is made on the spread of mortgage paydown, cashflow(best with RTO exit), and appreciation. Target market is usually best between $200-450K. In your marketing tell people how you are solving their problem “no matter your situation I can usually find a way to buy your house”. Sellers may include frustrated landlords, look for people who are advertising/want 2nd or 3rd mortgages. TIPS: never negotiate price on the phone, people usually want a response within 24 hours so if you get calls from your I BUY HOUSES ads callback right away(they are motivated), scripts include “I do buy houses cash, but that is about 5% of my business, they usually need a ton of work then I flip them. The majority of houses I buy is with some kind of seller financing. I buy houses as a business. This is my standard example. $300K list price, $290K sale price, $15K realtor fees, $5K improvements, so $270K would be reasonable right? The more money I give you upfront, the less money I can pay you because it costs me double digit interest to borrow it, in fact did you know that criminal usury is as high as 60%/yr!” Andrea’s best practices: no more 1 year deals, all are now 2 year deals with option to renew for a 3rd, no “sandwich leases” because you do not control the property, in BC PTT should be paid as skip transfers are complex.
- Assignments: If you get a good deal under contract, you can sell the contract to another person. Typical is 20% of the profit.(I paid part of the $3000 fee for this course by assigning a deal with $40K profit. I charged $1500 plus a 15% property management fee($2880/yr). The “normal” fee for a deal like this is $8K so I perhaps short changed myself, but not bad considering I did not know what I was doing :). BC Lawyer Rick Ledding’s tips: Many contracts(developers) will prohibit assignments, you can get around this by purchasing the deal in a numbered company and selling the shares, if you make more than $15k the seller will be P.O.ed and likely try to squash your deal, some insurance companies will not touch assigned deals.
- Rent to own: A good way to exit a property as you know your exact profits and exit date. You become a bank to B-/C clients. Sherilynn’s rules of thumb to qualify RTO tenant(use smallest number): Household income x45 is price of home they can buy, Initial option payment/0.05, or Monthly housing budget/0.006. Ideal clients are credit bruised people with high income and secure employment. Divorced, people with discharged bankruptcy who have a high option payment(higher gives best chance at buying the house). Don’t deal with someone who cheats on their taxes. Good properties are LEGAL suited houses(income counts for CMHC will help with end financing), perhaps it is best to avoid townhouses/condos. Tell self employed RTO clients “you HAVE to make sure your income grows, OR your spouse may have to go back to work so you can buy this house”. To save time, DO NOT meet the RTO tenant prospect until the showing – all qualifying should happen by phone/text/email. You may screen 200 to get 1 suceessful buyer – it’s a numbers game.
Build It, Own It, Work It
I loved hearing from Andrea Warkentin and Sherilynn about the day to day operations of a “Quick Turn” business. Unlike buy-and-hold, this is a VERY active business that needs CONSTANT work to turn a profit. Although being the managing partner of a buy-and-hold business is time consuming, it can be run off the side of your desk(I did for 6 years). A Quick Turn business will quickly bog you down without the proper time commitment to implement and follow SYSTEMS like these:
- Education – get educated, it’s faster and cheaper. Experiential learning is Expensive learning!
- Marketing. Level I: websites, kijiji, Googe Adwords(not a huge budget needed $30/mo should be lots). Level II: word of mouth, Facebook(ads too), Kijiji paid ads, fliers, “yellow letters”(expensive), Canada Post Admail etc…
- Quick Turn Team: credit repair service for RTO tenants, lawyer, realtor, flier delivery(runners), appraiser, home inspector, mortgage brokers, hard money lenders, tenantcheck.com, etc…. Similar to what is need for buy-and-hold.
- Systems and management: Virtual assistants(upwork.com. a word on assistants – do not hire anyone with real estate aspirations of thier own, they will just learn from your and run away after your train them. make sure your assistant is not relying on you for their bread a butter), Checklists! Checklists! Checklists!, runner on the ground, scripts for FSBOs and RTO tenant prospects, JV partners
- Action: Lather, Rinse, Repeat.
- Be proud of your business. This is a business, the way our company makes money is… Assume a YES.
- Don’t do a deal unless you stand to make at least $15K from it.
- Networking – mortgage brokers can be a good source of RTO clients
- Referrals – always ask for it.
- JVs – ask everyone “would you happen to know anyone who is interested?” and ask the people you are most afraid to ask.
- Set goals – ie Call 10 FSBOs per day
- Accountability partner – use them!
- Take action: use the aftercare program, generate leads(outbound leads by calling FSBOs from signs&Kijiji and inbound leads by taking out ads), qualify leads(use FSBO lead sheets, practice calling them, JV leadsheet), construct offers(you learn more by doing, use Deal Ready Documents, doing this poorly is better than not doing anything), close quickly(close deals fast, use professionals, make deals win/win, don’t be afraid to give away part of a deal to make it win/win, you can make up for the diminished returns by doing volume), celebrate with the money you create(take a trip, give it away to a charity, have fun).
In all, the course was a great investment and I have already worked 2 deals(one before the course and one that thus far has failed), and am looking for another one before the end of 2015. If you are interested in becoming a quick turn/rapid cash operator, I strongly recommend a course like this. Nothing beats immersing yourself in training from people who know the secrets to making money at your desired strategy.
I paid $3K and spent three days to learn what I shared with you above, I hope you enjoyed!
Until next time,