So Minnesota is a no-go... at least with the property we were going to bid on. And the local property we talked about is also a no-go. So... this leads to two important points:
First, stick to your guns. We have a business associate and friend who tells the story of his father buying cars at auction to flip them. He would sometimes end up paying too much and putting himself into a position of not being able to make a profit on the car. When questioned about this by our friend, his father would say, "It was the last car. I had to get something. I couldn't come home empty handed."
Remember this and tattoo it on your forehead backwards so you see it in the mirror ever day (or just write it on your mirror):
YOUR GOAL IS TO MAKE A PROFIT!
Your goal is not to make a living for someone else or provide the funds so that they may do so. Your goal is not to make someone else comfortable. If you do this business right, in our opinion, those things will be natural offshoots of the business. However, if you get caught up in the bidding war, or exceed your own drawn boundaries, you will fail. If you fail too often or too many times, you will not be making a profit because you will not be in business. Come home empty handed, but with your wallet in tact for the next opportunity. And the next. And the one after that, if need be. Patience, grasshopper.
To expand upon this, we were listening to the Joe Polish podcast on marketing. He was interviewing Damond John -the FUBU guy from the TV show Shark Tank. Daymond has a new book coming out about The Power of Broke. (See the link below.) Raymond talked about small and affordable steps on one's way to building an empire. The emphasis here should be on the word affordable. There is nothing affordable about forcing a bid or letting ego rule the day. This isn't Vegas.
So, the second point is that there will always be opportunity, but not all opportunity is good. We are meeting with our contractor and realtor tonight. We are going to have a beer or two and possibly a burger. We are going to consider the menu of opportunities before us and either "order" something or pass for now. Specifically, we will look at our three empty lots in a rapidly gentrifying neighborhood and consider new construction -which we have been considering for a long, long time now. (See the Box Bend Home link on our main website: www.boxbend.com ) We will also consider one or two other possibilities -including the old farmhouse that we might want to turn into a rental. And when it is all said and done, we will probably return home to digest all this information.
The point being that we do not need to panic and become despondent over the local auction, or the one in Minnesota. That is our tendency, by the way. It is probably human nature and not just our tendency alone. "Ah, I didn't get anything." Head down. A half-hearted kick at the dust on the ground. Maybe a follow-up: "Gosh Darn-it! Gosh Darn-it all to heck!" But, hey! Charlie Brown! Lift up your head. Opportunity truly is all around. You don't have to fall for that Lucy every time. The trick is not in finding opportunity, but in finding the right opportunities... the right conditions, the right people, the right deal. To be as redundant as possible; if the opportunity is not right, before pulling the trigger and shooting yourself in the foot, nether regions, or even someone else, consider the first point again. You want the "right opportunity," not just any opportunity.
Maybe a third point is to have a plan. Have some guidelines when you approach this business. It is getting crazy out there again. The "bubble" mentality is coming back with a vengeance. The "We Buy Houses" bandit signs have gone off and made thousands of babies by people that are ill-equipped to be parents. People are overpaying. They are watching HGTV or DIY Network, and thinking that they have the wold by the short hairs and all they need to do is bring a fat wallet and some half-baked notions about how to sequence a deal and they will be A-Okay and then they will be driving that Porsche 911 in no time and they will have a huge mansion and maybe a TV show of their own and... Man! Get a grip. This isn't fantasy land. These are the same nut-balls who overextended themselves last time. They have convinced themselves that "this time" is different, and as long as they have the money, or can get the money, they will make money. Wrong. Sorry, but very, very, very wrong. (We have a friend that says that the use of the word "very" is wrong.) This isn't planning and sound business. This is buying a storage locker and hoping that there is a unmolested Ferrari underneath the tarp. Those sensuous curves that you see are actually plastic, worn, and nasty butts of mannequins from some defunct store that misjudged ego and hubris for supply and demand. We have said it before and we will say it again: Hope is not a strategy.
Take a bus, Gus. Make a new plan, Stan. It is time to get out of that town of old, gold-rush thinking, and be disciplined and principled. Be a true business person. This is even more important than finding the opportunity. This is the foundational stuff. Because what is coming is what is always coming when too many people flood a market and drive up demand while reducing supply: A bubble. And that is really good news. Believe it or not, that is excellent news. Why?
If you are principled and follow guidelines, you may be in a position to still be standing when this thing pops in a year or three. We are not advocating sitting on the sideline. Don't misunderstand. We are saying, swing only at the ones that are in YOUR sweet spot. And keep a little powder dry. Because if you buy the deal correctly, there will be plenty of room to move down if you have to. And, when there is blood in the streets, you will be able to jump in and pick up great deals. You will still be standing. The idiots that go out and say, "This time is different!" will end up where they always end up: Starting over. Or looking at a tarp and guessing what is underneath.
Now don't get us wrong. Nothing wrong with Starting Over. Better that than not starting at all. It is only that minimizing the need to start over is truly in your best interest. You may have to learn this lesson a few times. We may need to learn this lesson a few times. But it is kind of like Daymond John talking about going broke three times on his road to a clothing empire. He said that he needed to learn those lessons before being entrusted with bigger stakes. Maybe you need that, too. Maybe we need that, as well. But wouldn't it be better to learn from other people's mistakes? Wouldn't it be better to look around and say, "What happened last time, and why?" Wouldn't it be better to have that plan?
We think that the Minnesota and local auction winners will make money. We applaud that. We wish them no ill-will. We will never begrudge a man or woman their success. We are only saying that we have a sweet spot and we won't swing until the ball is right where we want it. Or, if you prefer, we won't order off the menu just to eat. We will order if the meal looks appetizing. There will always be risk. There will always be some sort of question mark hanging out there. We will swing. We will swing again. And again. We will order of the menu, and probably go back for more. So, again, we are not advocates of a passive bench warming strategy. We are advocates of a strategy.
Our strategy is to limit our purchase price to a percentage of ARV -after repair value. This is for our buy-transform-sell portion of the business. We will take a slightly different approach if we are considering the buy-transform-rent strategy. We will take a completely different approach if we are considering the buy-build-sell or buy-build-rent strategy. And we have a new strategy on the true flip/wholesale side of the fence. But, to date, our sweet spots have been to buy-transform-sell, or buy-transform-rent. And in some cases (a totally different business altogether) we just buy and rent. We also have a strategy of Kaizen, or if you are from New Zealand and a huge fan of the All Blacks team, this is "Scrum." We will be looking for constant improvement. We will be looking to restart play if need be by moving the ball in our direction. What this truly means is that we are willing to learn from others. If someone is consistent and congruent in their results, good or bad, we are all ears and eyes.
We hope that you are encouraged to define your sweet spot, take the shots or swings or order from the menu, and persevere. If you don't know how to do that, then read blogs like this, get an Audible subscription, go to the Library... find out what others have done and are doing. But don't watch that crap on HGTV. The big Land Rover or Cadillac Escalade probably came from syndication royalties and not the biz of "flipping." Side Note: If we are ever offered that fantasy land gig of a TV show, we will be taking it. Just saying.
All of that TV fiction aside, remember that Jordan probably scored so much because he missed so much on the court. Same with any great player. And you do want to be a player, right? You aren't reading all of this verbal diarrhea for your health, right? Well, go play, Charlie Brown.
Just watch out for that Lucy.
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