When you think about a brand, the first thing that pops into most people’s minds are companies like McDonalds, Coca Cola, Apple, WalMart, and to get some Canadian content, CIBC, Air Canada, Canadian Tire, and Blackberry. Your first reaction is to not think of yourself as a brand, but really not much is different between those large mega-companies and your own start-up business.
When I got started as a realtor, I knew from the beginning, what differentiates successful realtors from fledgling realtors was awareness. I spoke to a number of veteran “middle of the road” realtors and asked what made them different and they proudly stated that they offered quality customer service. The problem is, typically customer service cannot be measured. Besides, EVERY realtor claims they provide top notch customer service. Heck, even the FSBO and mere posting companies advertise they offer quality support and customer service. Whether you think this way or not, if customer service is your only advantage, you really don’t have anything.
Yes, some investors or realtors eventually earn a reputation after years of quality customer service and that can lead to a decent living. But I don’t want to wait around a decade and decent just ain’t good enough for me.
Because of that, you need to create and constantly be improving your brand. The obvious way is spending big bucks on advertising, but if your brand isn’t that strong it is hard to sustain that growth, plus it is awfully expensive.
In the real estate sector, growth can come from enhancing your education. But other less obvious ways that may you a better brand include writing articles on different sources (blogs, magazines, newspapers, etc), doing speaking engagements. In short, you need to become recognized as an expert in your field.
I really like how Thomas Beyer puts it in his book, 80 Lessons Learned. He says it is like a circle you create a better product, then you can create better marketing, which creates more leads / inquiries, which creates more sales, which will generate higher revenue / profit, which allows you to create an even better product which starts the circle all over again.
I personally feel you need to start that cycle with better products in order to sustain growth. Remember, that cycle can always start to go in the negative if you don’t continue to improve your product.
If I can offer two suggestions to realtors or investors just starting out is to #1, work on your brand. Make yourself better. But then, #2, don’t avoid marketing yourself even though you are not the expert you wish to one day be. Get out there and promote yourself and start that cycle going.
The Thomas Beyer of today with 1000+ doors is a much more polished investor than the one just starting out. One term he refers to regularly in his book is “kaizon”. It is Japanese for “good change” or “small but continuous and steady improvement”. I’d never heard of that term before, but I suppose in my time in this business, I’ve tried to do just that.
This year, I am taking some of my own advice and will be spending more time and money marketing myself then ever before. I will be getting a booth at the Investor’s Forum in Toronto in March 2014, I am continuing to improve this website, I will be increasing the number of club investor meetings I will attend, and I will be trying to do more speaking engagements and articles published going forward.
It is difficult to know ahead of time what single event builds your business. But overall, I think it is obvious this activity will create more contacts and generate more leads. The cycle Beyer wrote about will keep rolling along.
It struck me one afternoon. It was a beautiful spring Saturday afternoon. The sun was out but the winter’s coldness and snow was still a vivid memory. I wanted nothing more than to jump into my convertible and go for a drive and feel the warm breeze on my face.
But NOOOO. I was stuck in yet another damn real estate investment seminar. The content was good. The networking opportunities were good. The reasons for being there were good. But the warm sunshine was calling out my name.
It was then I had an “ah ha” moment. To get to where I want to be, I had to forego the occasional sunshine day and forge ahead to my eventual goals.
I’m reading Thomas Beyer’s book, 80 Lessons Learned. Beyer is a guy that built his investment portfolio from $80K to $80M in about a decade. He quotes Bill Gates “Most people overestimate what they can do in one year but underestimate what they can do in ten. Don’t let yourself be lulled into inaction”. Beyer drives home the point of what if you started today, imagine what you can accomplish in a decade.
Today I’m sitting on a cruise ship heading back to New Orleans. We just celebrated New Year’s on the ship and the question always asked at this time is “what is your New Year’s resolution?”. The host asked this question a number of times and got a number of silly responses. Most people truly don’t know what they want. They don’t sit down and really think about what they want. When asked by my table, I pulled out my trusty Blackberry and rattled off my goals for 2014. Whether or not they really wanted to hear some real goals I guess I don’t care. I read somewhere that less than 3% of North Americans have a list of written goals. By writing down your goals, you instantly put yourself in a select company.
I wish I could tell you that the seminar I attended that warm spring day changed my life. Or I met someone who eventually became my business partner or even a client. But alas, it was uneventful. But that doesn’t mean it wasn’t worth attending. Change is a process with a whack load of little steps. Giant leap forwards and big breaks don’t happen until you’ve put in the fundamentals to make yourself ready for the big leaps.
I know how this sounds, but sometimes when I’m being dragged into something that will take up a fair bit of my time, I’ll look at my list of goals and remind myself if this is bringing me any closer to any of my written goals. If it isn’t, should it be one of my goals? If the answer is still no, I try to get out of it. Now, please note, not all of my goals are business or financial in nature. In fact, less than half are that way. Many are family, personal growth and travel related.
I remind myself, on days when I see the sunshine out and I want to play, that doing the seminars, networking on days you don’t want to, sending out the newsletters, etc, etc, allows me to take my family to a New Year’s cruise where we can see Mayan Ruins in Mexico, walk up Dunn’s Falls in Jamaica and stroll down Bourbon Street in New Orleans.
Now I’m worrying about not getting a sunburn while everyone back home is dealing with the after effects of the ice storm. Growth isn’t easy, but it can have its rewards.
To those that have heard of the “power of 72”, this may seem like nothing special, but if you have never heard about this “trick”, you will likely find this neat.
Take the interest you expect to receive and divide it from 72. The number you get is the amount of years needed for the value to double. Say you are getting 6% interest annually. Divide 72/6 and you get 12. In 12 years, $1000 becomes $2000. If you have 7% annual interest, 72/7 equals 10+ years to double. 10% interest doubles in a little over 7 years. Don’t believe me? Try in yourself. Let’s take 12% interest. Start with $1000. Then multiply that number by 1.12. Repeat that process 6 times. (Go ahead, do it …I’ll wait). Amazing isn’t it. Try it again at 9% or 7% or 5% or 3%. Works every time.
OK. To those that now understand the power of 72, that shows the amazing power of compound interest. But, if you are like me, you don’t want to wait around 10 or 12 years for that $1000 to double. Is there any way to leverage your money to work even harder and faster for you? If my answer was no, that would be a funny way to end this article. However, there actually is a way to leverage your investment dollars in real estate investing.
First, before I go on, let me explain what leveraging is. You are typically using borrowed money to increase your wealth. When you borrow money, the person or organization who loaned you the money typically wants that money back. Not only that, but the bastards want to also collect interest for their efforts. The nerve of them!
This means if you intend on borrowing money, you better be pretty damn sure the property can maintain its value, or is in a position to rise in value.
In real estate, people leverage all of the time. Anyone who has ever taken out a mortgage has leveraged the cash they spent to obtain the home and been able to take use of that property. Real estate investors do that system in hyperdrive.
In Canadian real estate, one needs to put 20% of their own money down, in order to take possession of the investment property. This means you are taking out a mortgage for 80% of the value of the property.
If you have obtained a property that just covers its expenses, and generates absolutely no positive cash flow, one of those “expenses” is still the mortgage payment. Yes, the rental income covered the interest on the mortgage, but it also covered the principle. This means that over time, the tenant pays your mortgage off. Pretty cool huh.
Now like the game show announcer says. “But that’s not all”!
Let’s remember, over the past 100 years, Canadian Real Estate tends to go up in value. Can you absolutely count on appreciation? In any one year period no. But since you are buying this property with a long term mindset, I think it is safe to say yes. (Especially if you bought intelligently – as we discussed in other articles).
Since 2000, Durham Region real estate has AVERAGED a growth of OVER 5% (and that includes the recession in 2008-09). So what you scoff. My mutual fund has averaged 8%. As impressive as that is, you failed to recall that my investment was leveraged. My $1000 was able to secure a loan of $4000. My $1000 received a return of 5%, but so did the leveraged money ($4000 x 5%). This means my $1000 actually received a return of 25% on an appreciation of 5%.
Hold on you say, you also had to pay for that money you argue. True, but we already established that the interest and principle paid in the mortgage was covered by the tenant’s rent.
To summarize, we got the tenant to pay down the mortgage, we got an appreciated value in Durham Region over this century of 25% and we haven’t even made one dollar of cash flow. In my two-unit properties, I target an appreciated value of $250 a month per door.
You can see quickly that with a PROPERLY leveraged property, the return we are looking for is north of 30% annually. If all hell brakes loose and over 10 years, the values stays the same or even goes down a bit. We still have a property that has been paying down its mortgage for a decade and generating some cash flow dollars.
So, why doesn’t everybody do this you ask? Simple. Unlike paper assets like a stock or mutual fund, you have to do some work to get this kind of return. You can’t just put the money into property and expect all of these returns without managing tenants, dealing with hassles and putting up with some shit. But, if you want the big returns, that is what it takes.
Before I finish off, let me remind everyone that if you like the returns delivered in Canadian Real Estate, but don’t want to do the work (ie deal with the hassles) there are plenty of joint venturing opportunities out there. If you are willing to put up the money, there are a whack of people out there willing to do the day to day efforts in a partnership and will do all of those things for only half of the profits. That means you can reap the rewards of Durham Region real estate and all you need to do after signing the contract and purchasing the property should be looking at the quarterly or annual results.
If you want to know how to reach out to those people, send me a note and I’ll make the introductions.
Creating a financial snapshot was one of the best single things I ever did. I’m not going to lie to you, the first time I did this exercise the numbers really sucked. So much so, I didn’t even title the spreadsheet, “net worth” or anything glamorous like that. I called it Michael’s expenses.
The process is a simple one. On one end, list out every asset you have and provide a value for each asset you have. In some cases, you can have a precise value. Your RRSP can be to the penny if you wanted. Your real estate would need to be a conservative estimate if you sold it today. To try and get the most value I could, I resorted to actually counting my piggy bank. Hey, every dollar counts.
Underneath that, list all of the expenses owed including mortgages, credit card bills, lines of credit, car payments.
Interesting, one thing I never did list as an asset was cars or household items. I figured these items were depreciating assets that really do have minimal value.
Fast forward about 7-8 years from my first snapshot and it tells a wonderful story. I was 40 and had a minimal net worth. It reminds me of the old story of the patient that goes into the doctor’s office and says “Doc, it really hurts when I do this …” And the doctor replies, “Well, stop doing that”. It took me preparing a net worth snapshot to determine where I was. I had goals of where I wanted to be. How do I get from here to there? Over 40 years, I built wealth the same way and through that way, I failed miserably. Then I stopped doing it that way and went about doing things properly.
Now you might think it is a bit of revisionist history. I’ve had some success now and I therefore had some master plan all along. I’ll agree it wasn’t that laid out. But I started to make changes. I became a student of wealth, I changed professions, I began to associate myself with successful people. Good things happen, and opportunities arise when you put yourself in a position to be successful.
The last thing I want to say on the matter is you need to be truly committed to success. A physical trainer I know is often telling me I need to commit to a healthy nutritious diet, exercise more, etc, etc. His point is a sound one. It is my only body. I understand the pitfalls of not doing the right thing. But to date, I just haven’t been committed. I suppose the same analogy can be said about your financial health.
Now if only I can commit to working out and eating right.
I was reading a great book today. The legendary David Chilton’s newest book, the Wealthy Barber Returns.
I came across this passage, “each year, the Washington Post runs its Mensa Invitational contest where readers are asked to add, subtract, or change one letter of a word to give it a new meaning. One year’s winner was cashtration. The act of buying a home, which renders the subject financially impotent for an indefinite period of time.”
I agree with Mr. Chilton’s assessment that it is very clever and I wish I came up with it myself.
I am a huge supporter of adding assets into my wealth portfolio. The mistake that most people make is they simply don’t know what an asset really is. Most people believe that an asset is stuff they own. The more sophisticated say that it is stuff that appreciates over time.
I tend to feel that a true asset is something that generates enough cash flow to (at minimum) sustain itself, and ideally creates cash flow that will support your personal expenses. An asset will not only cover its pure expenses, but also its debt servicing.
Let’s go over items that most people regard as an asset that, in fact, can lead to personal cashtration.
Cottage – it is no surprise to most that a cottage is an expense. Yes, over time it may appreciate, but you can never completely bet on appreciating values. When you consider property taxes, utility expenses, insurance, occasional repairs and debt servicing, this is a true expense.
Personal Residence – this one might generate a few arguments. How many times do we hear parents say, my house was my best investment I ever owned. This could very well be because they never owned any other investments. I agree that you need to live somewhere, however, as long as you contend that it is a needed expense, we can all agree.
Downtown Condo Rental – to your credit, you are trying to add assets, but you are just missing the mark. That is of course, if the rental income generated from the condo does not exceed the carrying costs.
So! How to avoid cashtration you ask. Simple. Make sure that any asset you own carries itself and actually contributes to your income.
We’ve all heard the expression “2 income household”. That typically refers to a household where both spouses bring home an income that contributes to the household expenses. Why can’t you have the goal of having a 10 income household. Some might think that this means having some harem of women all working towards the household income. OK, that’s the first thing I think of anyway.
But what if you add assets that pay you money on a regular basis. For me personally, I have my own realtor income. My wife’s salary. Our RRSP’s and other paper investment’s dividends. Finally, each property I purchase must contribute to the family income.
This way if one of the incomes dry up, like my wife’s job ending or one of my properties unable to rent for 6 months, then we have alternative sources of income.
Not quite the harem of women solution, however, I’m pretty sure that option would have its own host of challenges too.
Insider trading in the world of stocks and corporations is very frowned upon. In fact, as Martha Stewart and many others can attest, you can face major fines and even prison sentences for indulging in that practice.
But, in real estate, you have the ability to go out and become a market expert. You can learn about ways to maximize the value of a property and build equity where others just don’t see it. You can learn about changes or improvements or developments in an area that based on your research can have a real financial effect on the community and may have a positive effect on sale prices and/or rental demand.
Sometimes I hear how hard it is to learn about a community and become that expert. But, with social media, the internet and networking the old fashion way, such as going to city hall, reading the local papers and going to local investor groups, it really doesn’t take that long to understand a market.
As a realtor, I have the advantage of seeing more properties then most. I also ask tenants when I see them why they chose that area, do they like it, and are they planning on staying. I do that even more when I see the kind of tenants I would want in my place.
There have been investment opportunities that I have passed on based on the research I have done on the area. I discovered that some tenants that I would have wanted, were ready to leave the area. That, along with other due diligence we did was enough to get us to walk from the deal.
There are plenty of opportunities all over the place. Even within one city there are almost unlimited opportunities. Don’t just jump at the first opportunity that comes to you.
The best news of all. Once you have learned about a particular community, and have decided that it is a place you want to invest, you are ready to take action. You can repeat the process over and over. One day, I expect to own a cluster of properties in my desired areas. Don Campbell says to make your investments boring. Find a strategy that works, do it, then repeat. I constantly need to remind myself of that very thing. It is so much more exciting to think about new builds, large multiplex deals, and new markets.
But being a market expert in Durham Region Ontario, I know how to create wealth here. It is cool to think that if all hell breaks loose and I lost all of my wealth, I know I can recreate it and get back to where I am now. That’s a cool feeling to have.
If only Martha Stewart had focused on cash flow generating properties instead of stocks, she might have been able to avoid that prison cell and made just as much wealth. And, as Martha would say, that is a good thing.